Appeal of Rhoades, Brownson & Kampman, Inc.

[198] OPINION. Trussel: In so far as the controversy involved in this appeal is based upon the allowable deduction for wear and tear of the tools and equipment used in the taxpayer’s business, the testimony of the witness examined must be taken as establishing the fact that the tools and equipment so employed and their use are of such a character that they must be replaced at least as often as once in two or three years, and upon that basis a deduction of $3,056.41 on an investment of $8,056.41 can not be said to be unreasonable. We are of the opinion that the Commissioner was not warranted in making any modification of the taxpayer’s accounts by reason of the amount deducted for depreciation. The record of this case is clear and contains convincing evidence that the taxpayer as a corporate organization, during the year 1920, was engaged only in selling the services of its members in the performance of a business requiring special qualifications as to skill, experience, and knowledge of a technical character, and that the corporate form of organization must have been adopted by the members of the taxpayer company simply as a matter of convenience in organizing and selling the personal services of its members. While it appears that the taxpayer company had a paid-in capital of $9,750, it also appears that more than $8,000 of this amount was invested in office furniture and the operating tools and equipment used by the members of the organization in carrying on their trade. These tools and equipment, which constitute practically all of the capital of the company, are not unlike the kit of tools carried by every mechanic in the conduct of his business; thev_dil!er little in general from the equipment of the physician or surgeon in carrying on his profession, or the office furniture and library of the lawyer; and we are of the opinion that such funds as any mechanic, physician, surgeon, nr lawyer has invested in the tools and equipment necessary for his business are not such a form of capital as to be considered under the Revenue Act of 1918 as a material factor in [199] producing earnings and pxofits. It is plain from the record of this appeal that the taxpayer did not have, but also that it did not have any use for, any other capital. While it appears that during the year 1920 the taxpayer employed a considerable amount of common labor hired at á certain fixed sum per hour, it further appears that the taxpayer made no profit upon the employment of such labor; that it hired the labor at the fixed union scale and charged such labor to its patrons at the same figureN- The record plainly shows that this taxpayer, during the year 1920, neither received nor earned any income other than from the fees paid to it for the personal services of its members in performing the duties of weighers, samplers, aiid graders of crude rubber, and that each and all of the members of the organization were continuously engaged in the performance of such sendees. We are, therefore, of the opinion that the taxpayer, during the calendar year 1920, was a corporation whose income must be ascribed. primarily to the activities of the principal owners or stockholders, all of whom were then actively engaged in conducting the business of the corporation, and in which capital was not a material income-producing factor.