Streckfus Steamers, Inc. v. Comm'r of Internal Revenue
| Decision Date | 06 October 1952 |
| Docket Number | 33419.,Docket Nos. 25503 |
| Citation | 19 T.C. 1 |
| Parties | STRECKFUS STEAMERS, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Davis Haskins, Esq., and John A. Newton, Esq., for the petitioner.
Frank M. Cavanaugh, Esq., for the respondent.
1. The amounts paid by petitioner to its four officers in the taxable years 1942, 1943, 1944, and 1946, pursuant to its bona fide contingent compensation plan adopted in 1931, and consistently followed, constituted reasonable compensation for the services rendered to it by such officer in those respective taxable years.
2. The amount of $2,867.98, representing Illinois sales tax, which petitioner erroneously accrued and deducted in 1940, was not properly included
These consolidated proceedings involve deficiencies in income, declared value excess-profits, and excess profits taxes for the years and in the amounts as follows:
+-------------------------------------------------+
¦Year¦Income tax¦Declared value ¦Excess profits¦
+----+----------+------------------+--------------¦
¦ ¦ ¦excess profits tax¦tax ¦
+----+----------+------------------+--------------¦
¦1942¦$26,901.27¦$2,194.40 ¦ ¦
+----+----------+------------------+--------------¦
¦1943¦26,901.06 ¦ ¦$2,029.10 ¦
+----+----------+------------------+--------------¦
¦1944¦26,746.85 ¦2,396.38 ¦ ¦
+----+----------+------------------+--------------¦
¦1946¦24,683.01 ¦ ¦ ¦
+----+----------+------------------+--------------¦
¦1947¦400.98 ¦ ¦ ¦
+-------------------------------------------------+
The contested issues are (1) whether the respondent erred in disallowing in part compensation paid by petitioner to its four officers in the taxable years 1942, 1943, 1944 and 1946 as excessive, and (2) whether the respondent erred in including the amount of $2,2867.98 in petitioner's income for 1943, representing Illinois sales tax accrued and deducted in 1940, but which petitioner never paid.
The case was submitted on a partial stipulation of facts and oral testimony. The stipulated facts are found accordingly. Other facts not stipulated are found from the evidence.
Petitioner is a Delaware corporation organized in 1926 and maintaining its principal office in the city of St. Louis, Missouri. It kept its books and filed its returns on an accrual method of accounting. Petitioner's tax returns for the periods involved were not filed with the collector of internal revenue for the first district of Missouri at St. Louis, Missouri.
Upon its incorporation petitioner exchanged its 50,000 shares of no par capital stock for the assets of Streckfus steamboat Line Company, an Illinois corporation, organized in 1910 and having a paid-in capital of $179,973. Petitioner, as did its predecessor, has principally engaged in the operation of excursion boats on the Mississippi River.
The founder of petitioner's predecessor was Captain John Streckfus, who had four sons, Joseph, John, Roy, and Verne, each of whom began working on the company's river boats as boys during their vacations. As each completed his education he became associated with the company on a full-time basis. All four sons learned the excursion boat business from the ground up. As they became eligible each passed the required examinations and were duly licensed as mates, engineers, pilots, and masters of river vessels.
After the death of the founder in 1926 the four sons took over the operation of the business. Joseph, the eldest son, became president and general manager; Roy was district manager in New Orleans; John was superintendent of construction, and Verne was assistant superintendent of construction. The reasonableness of the compensation paid to these four officers is in controversy. The compensation paid by petitioner to each of such four officers for the years 1942 to 1947, inclusive, was as follows:
+------------------------------------------------------------+
¦Year¦Joseph ¦John ¦Roy ¦Verne ¦Total ¦
+----+----------+----------+----------+----------+-----------¦
¦ ¦Streckfus ¦Streckfus ¦Streckfus ¦Streckfus ¦ ¦
+----+----------+----------+----------+----------+-----------¦
¦1942¦$56,641.68¦$33,040.79¦$33,040.79¦$33,040.79¦$155,764.05¦
+----+----------+----------+----------+----------+-----------¦
¦1943¦61,874.76 ¦36,093.57 ¦36,093.57 ¦36,093.57 ¦170,155.47 ¦
+----+----------+----------+----------+----------+-----------¦
¦1944¦59,028.00 ¦34,432.80 ¦26,420.10 ¦27,080.47 ¦146,961.37 ¦
+----+----------+----------+----------+----------+-----------¦
¦1945¦17,708.76 ¦10,330.05 ¦10,330.05 ¦10,330.05 ¦48,698.91 ¦
+----+----------+----------+----------+----------+-----------¦
¦1946¦64,361.04 ¦37,543.73 ¦37,543.73 ¦37,543.73 ¦176,992.23 ¦
+----+----------+----------+----------+----------+-----------¦
¦1947¦36,734.88 ¦21,428.56 ¦21,428.56 ¦21,428.56 ¦101,020.56 ¦
+------------------------------------------------------------+
In each of the years 1942 to 1947, inclusive, the petitioner paid a basic salary to Joseph Streckfus of $12,000; to John Streckfus, $6,999.96; to Roy Streckfus, $6,999.96, except in 1944 when he was paid $5,371.03; and to Verne Streckfus, $6,999.96, except in the year 1944 when he was paid $5,505.28.
The compensation paid to such officers in the years 1945 and 1947 was not adjusted by the respondent and is not in controversy.
The amounts disallowed by the respondent as excessive compensation for the taxable years 1942, 1943, 1944, and 1946 are as follows:
+-----------------------------------------------+
¦Year¦Joseph ¦John ¦Roy ¦Verne ¦
+----+---------+----------+----------+----------¦
¦ ¦Streckfus¦Streckfus ¦Streckfus ¦Streckfus ¦
+----+---------+----------+----------+----------¦
¦1942¦$6,641.68¦$12,160.79¦$11,177.79¦$12,540.79¦
+----+---------+----------+----------+----------¦
¦1943¦11,874.76¦15,213.57 ¦14,230.57 ¦15,593.57 ¦
+----+---------+----------+----------+----------¦
¦1944¦9,028.00 ¦13,552.80 ¦4,557.10 ¦6,580.47 ¦
+----+---------+----------+----------+----------¦
¦1946¦14,361.04¦16,663.73 ¦15,680.73 ¦17,043.73 ¦
+-----------------------------------------------+
During the taxable years involved the 50,000 shares of petitioner's capital stock outstanding were held in part by the petitioner's four officers, individuals related to the Streckfus family, the Mercantile Trust Company and Joseph Streckfus, as trustees, and certain individuals unrelated to the Streckfus family, in amounts as follows:
+-----------------------------------------------------------------------------+
¦Name ¦1931 ¦1942 ¦1943 ¦1944 ¦1945 ¦1946 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Joseph Streckfus ¦10,730¦6,911 ¦6,171 ¦5,411 ¦4,788 ¦4,188 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Joseph Streckfus, Trustee ¦27 ¦27 ¦27 ¦27 ¦ ¦ ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Joseph Streckfus family ¦ ¦5,172 ¦5,912 ¦6,652 ¦7,252 ¦7,852 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦John Streckfus ¦4,835 ¦5,527 ¦5,527 ¦5,527 ¦5,527 ¦5,527 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Verne Streckfus ¦4,807 ¦5,432 ¦5,432 ¦5,432 ¦5,432 ¦5,432 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Roy Streckfus ¦2,779 ¦404 ¦404 ¦404 ¦404 ¦404 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Roy Streckfus family ¦ ¦3,050 ¦3,050 ¦3,050 ¦3,050 ¦3,050 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Lilly S. Manning family ¦778 ¦778 ¦778 ¦778 ¦778 ¦778 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Anna S. Manthey family ¦501 ¦701 ¦701 ¦701 ¦701 ¦701 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦May Streckfus ¦243 ¦293 ¦293 ¦293 ¦293 ¦293 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Mercantile Trust Company and Joseph¦15,203¦15,203¦15,203¦15,203¦15,203¦15,203¦
¦Streckfus, Trustees ¦ ¦ ¦ ¦ ¦ ¦ ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Unrelated ¦10,097¦6,502 ¦6,502 ¦6,522 ¦6,572 ¦6,572 ¦
+-----------------------------------+------+------+------+------+------+------¦
¦Total ¦50,000¦50,000¦50,000¦50,000¦50,000¦50,000¦
+-----------------------------------------------------------------------------+
The trust which owned 15,203 shares was created by the will of Captain John Streckfus, Sr. The beneficiaries were his seven children, Joseph, Roy, John and Verne Streckfus, Lilly S. Manning, Anna S. Manthey, and May Streckfus. Each beneficiary had a one-seventh interest, or 2,172 shares each, except May whose interest was 2,171 shares. The unrelated stockholders consist of 13 or 14 individuals.
Petitioner's gross operating income, the amount of profit subject to its contingent compensation plan and the cash dividends paid in the taxable years in question are as follows:
+---------------------------------------------+
¦ ¦ ¦Profit subject¦ ¦
+----+---------------+--------------+---------¦
¦Year¦Gross operating¦to contingent ¦Dividends¦
+----+---------------+--------------+---------¦
¦ ¦income ¦compensation ¦ ¦
+----+---------------+--------------+---------¦
¦ ¦...To continue reading
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