OPINION.
Trussell:
This appeal involves the interpretation of section 209 of the Revenue Act of 1917 as applied to. or affecting the business and financial status of the taxpayer during the calendar year 1917.
Facing the emergency of extraordinary Federal expenses resulting from war conditions, Congress undertook, in enacting the Revenue Act of 1917, to increase the Government revenues by levying additional taxes upon what it pleased to denominate excess profits, and, in sections 200 to 208, inclusive, of said Act, provided the method of determining the quantity of such excess profits and an ascending scale of rates of additional taxes to be levied thereon. Then, recognizing that there might be cases in which an application of said methods and ascending scale of additional taxes would produce a serious inequality of taxation, it provided in section 209 of said Act as follows:
Tliat in the case of a trade or business having no invested capital or not more than a nominal capital there shall be levied, assessed, collected and paid, in addition to the (axes under existing law and under this Act, in lieu of the tax imposed by section two hundred and one, a tax equivalent to eight per centum of the net income of such trade or business in excess of the following deductions: In the case of a domestic corporation $3,000, and in the case of a domestic partnership or a citizen or resident of the United States $6,000; in the case of all other trades of business, no deduction.
In section 210 of the same Act Congress provided for further methods of correcting the inequalities which might result from an application of the above-mentioned ascending scale of taxation.
In the instant appeal the taxpayer contends that it is entitled to be treated as a corporation having not more than a nominal capital and urges in support of such claim that only $4,633.92, which is less than 6 per cent of its gross income, was the result of operations requiring the use of capital, and that $80,273.52, being more than 90 per cent of its gross income, was fees earned by the stockholders of the taxpayer corporation for personal services as construction engineers and superintendents, and that capital contributed in no substantial manner to the production of this large proportion of the taxpayer's gross income.
However persuasive this argument may appear, it can not be overlooked that the taxpayer corporation appears to have been organized for the purpose of engaging in a general building contracting business; that it kept a considerable portion of its profits undistributed in order to protect its business; and that it held itself out to the public as ready to accept building construction contracts and did, during the year 1917, actually accept and perform one such contract from which it received a gross income of $4,633.92. And further, we find nothing in the above-quoted section 209, or any other part of the Revenue Act of 1917, which seems to warrant us in considering the sources of a corporation's gross income as an element in the determination of what is or is not " not more than a nominal capital." We are led to the conclusion that a capital fund of $100,628.93 is a sum of capital which can not in this taxpayer's case be termed nominal. Lincoln Chemical Co. v. Edwards, 289 Fed. 458; 2 Am. Fed. Tax Rep. 1953; R. H. Martin, Inc., v. Edwards, 293 Fed. 258; 4 Am. Fed. Tax Rep. 3634.
The record of this appeal, considered in connection with the provisions of the above-quoted section 209 and the decisions of the courts herein referred to, has convinced us that the Commissioner's action in denying this taxpayer assessment under section 209 of the Revenue Act of 1917, and in computing its liability to excess profits taxes under section 210 of the same Act, should be approved.