Mobile Drug Co. v. United States

• Decision Date: 07 March 1930
• Citation: 39 F.2d 940
• Parties: MOBILE DRUG CO. v. UNITED STATES.
• Court: U.S. District Court — Southern District of Alabama

39 F.2d 940 (1930)

MOBILE DRUG CO. v. UNITED STATES.

District Court, S. D. Alabama, S. D.

March 7, 1930.

M. E. Frohlich, of Mobile, Ala., for plaintiff.

Alec C. Birch, U. S. Atty., of Mobile, Ala., and Miles J. O'Connor, General Counsel, Bureau of Internal Revenue, of Washington, D. C., for the United States.

ERVIN, District Judge.

When the evidence was heard in this case, the legal representative of the government asked leave to file a brief, and I have held the case up for that purpose. When the brief was filed it was accompanied with a written request as follows: "Comes now the defendant and respectfully requests the court to make the following findings of fact and conclusions of law." Then follows four statements of fact and six conclusions of law. In this case there is not one word of contradiction in the testimony. The whole case depends absolutely on the application of the law to facts as proven. Under these circumstances, I see no occasion for me to make any findings of fact, as there is no conflict at all in them.

This is a suit by the Mobile Drug Company to recover two sums, or rather one sum and a balance of another, it was required to pay as income taxes for the same year's tax. The Mobile Drug Company was a corporation composed of the various members of the Eichold family. The father, Samuel Eichold, took his sons into the corporation, some as officers and some as employees, at an early age, and they were practically raised in the business.

In 1915 the sons had offers from other lines of endeavor, and in order to keep them with the company the father, who owned a majority of the stock and was president of the company, agreed he would pay them more money for their services, and the record shows that the business increased each year, and that for the years 1916, 1917, and 1918 they were paid a larger amount each year.

On January 9, 1918, the board of directors passed a resolution as follows: "The salaries for the year were discussed and it was agreed that if the volume of sales is sufficiently increased through the efforts of S. E., B. D. E., M. A. E., and H. V. E., that the salaries will be as follows this year — Samuel Eichold, $18,700.00; Bernard Eichold, $8,450.00; Milton Eichold, $8,700.00 and H. V. Eichold, $7,000.00."

The books of the corporation were kept on an accrual basis. On December 31, 1918, there was credited on the books, $2,800 to Samuel Eichold, $1,500 to B. H. Eichold, $1,500 to M. A. Eichold, and $1,500 to H. V. Eichold. On January 31, 1919, when the books had been balanced for the year 1918, and it had been ascertained that the sales for 1918 had increased 56 per cent. over the year 1917, there was then credited to each of the individuals certain sums. The aggregate of these two credits with the sums paid during the year is the salary named in the January 9th resolution.

It was shown that each of the individuals filed income tax returns for the year 1918 in which they reported the salaries paid them as per the resolution of January 9, 1918, and paid their tax on such reports, and on the income tax return for the corporation for the year 1918 these salaries were reported, and a credit was claimed for the same as expenses incurred during the year 1918.

The government disallowed this claim and made demand upon the corporation for payment of $5,331.32. On March 3, 1921, this was paid to the government under protest, and on December 22, 1922, a claim was filed by the corporation for the repayment of this sum.

On November 8, 1924, the government made demand upon the corporation for payment of $6,293.41 because it was claimed there had been a further mistake in the credit allowed the corporation on account of these salaries. This was also paid under protest, on May 8, 1925.

The drug company filed at various times several different claims with the government for the return of these two sums which it had paid under protest, and there were various rulings by the department. One of them allowed a credit of $3,700. There were also petitions and motions for reconsideration by the drug company from the various rulings as to the balance of these two claims until July 22, 1927, when the Internal Revenue Bureau finally disallowed the claim. There was then a motion for rehearing, and on September 13, 1928, the Commissioner wrote a letter to the drug company in which he says, in part: "Reference is made to form 843 filed by you on March 26, 1928, for the amount of $8,575.00 which pertains to your income and profits tax liability for the year 1918. Such form has been considered as a request for the re-opening of your claim for refund previously considered by this office as the contention set forth therein is identical with the data previously submitted for consideration in connection with the claim. You contend that officer's salaries should be allowed as a deduction in amounts aggregating $43,550.00 as such salaries were authorized by a meeting of the Board...