OPINION.
Lansdon:
The Board has heretofore stated its interpretation of section 200 of the Revenue Act of 1918, which governs the classification of corporate taxpayers as personal service corporations in the appeals of Bryant & Stratton Commercial School, Inc., 1 B. T. A. 32; the Dalton Gymnasium and Swimming School, Inc., 1 B. T. A., 54, and the Cleveland Snow-Church Co., 1 B. T. A. 234. In the case at bar it is necessary only to determine whether the evidence adduced by the taxpayer entitles it to the same privilege.
At the hearing of this appeal, counsel for the taxpayer argued that the laudable motives that impelled S. H. Boyd to lodge the ownership of twenty-nine-thirtieths of the issued stock of the taxpayer in his wife should be considered by the Board. It was also urged, in behalf of the taxpayer, that in forming the corporation, Boyd capitalized his reputation, high standing, and expert knowledge of Federal taxation, and, as a matter of fact, incorporated himself in such a way that in the event of his death the business of the taxpayer might still go under the control of Mrs. Boyd, with its prestige, good will, assets, and earning power unimpaired. Counsel also argued that the relations existing between husband and wife are of such a nature that the husband is really the principal owner and in control of a corporation even though a majority of the stock is legally owned by the wife.
The Board respects the motives of Boyd in planning to assure a competence for his family, but, in its consideration of this appeal, it is necessary to apply provisions of the law that have no doubtful meaning to facts that are not disputed.
The taxpayer has proved that it renders personal services to its patrons, and that invested capital is not a material income producing factor in its operations, but it has failed to convince the Board that its principal owners or stockholders are regularly engaged in the active conduct of its affairs. The stipulation shows that S. II. Boyd, the owner of only one of the 30 outstanding shares of capital stock, devotes all his time, and that Mrs. S. H. Boyd, the owner of the remaining 29 shares of stock, devotes no time to the taxpayer's business affairs.
The taxpayer relies on certain provisions of its contract with S. H. Boyd to prove its contention. The first claim is that the obligation to pay B03M one-half of its net profits in excess of 6 per cent per annum on invested capital is evidence that he must be regarded as one of the principal owners. The Board can not agree with such an interpretation of the facts. It was a proper corporate act for the taxpayer to enter into an obligation to pay its general manager a share of its profits as a bonus in addition to his stated salary. Such agreements are not unusual and are commonly regarded as a legitimate method for inducing employees to do their best in all proper ways to increase the earnings of their employers. Noth ing in the contract of employment indicates that the taxpayer ceded any of its corporate powers to Boyd, or relinquished any control over its affairs to him, other than to clothe him with the authority customarily exercised by the general manager of the business operations of a corporation.
Another provision of the contract between Boyd and the taxpayer, included in full in paragraph 3 of the findings of fact made by the Board, is cited by the taxpayer in proof of its contention that Boyd is in fact a principal owner of the corporation. Even if this provision Tvere enforceable at law, the taxpayer has offered no proof that Mrs. S. H. Boyd has ever surrendered control of her stock, either by the proper indorsement of her stock certificates or otherwise. Nor is there anything in evidence to show that S. H. Boyd has exercised his option to acquire all the stock of the corporation.
The Board is of the opinion that S. IT. Boyd secured no control over the taxpayer through the provisions of his contract of employment; that he has not availed himself of the provisions of the contract through which he might have become the sole owner; and that the relationship of husband and wife gives neither husband nor wife any legal control over property that belongs exclusively to the other. There is no legal foundation for the contention that S. H. Boyd is a principal owner or stockholder of the taxpayer, and, therefore, this appeal falls.