Masonry Magazine January 1972 Page.36
Taxes
(Continued from page 32)
independent contractor. The test, the IRS noted, is whether the relationship of employer-employee exists. Does the person for whom the services are performed have the right to control and direct the individual who performs the services not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished?
The IRS ruled that this truck driver was an employee of the company for purposes of withholding and other employment taxes. Rev. Rul. 72-467.
REASONABLE COMPENSATION
Every so often a Tax Court case is issued that gives one hope. A recent one concerned the question of the reasonableness of a salary. Two brothers owned all of the stock in a corporation that distributed gasoline for national oil companies and constructed gasoline stations on land it purchased. After doing this work for twenty years, the brothers sold their interest in the distributorships. They then continued in the construction business.
The old corporation was split up and 50% of the assets were transferred to a corporation owned by one brother, and the other 50% of the assets were transferred to a corporation owned by the other brother. However, one of the brothers continued to manage the service stations, and it was the reasonableness of his salary while so engaged that came before the Tax Court.
The evidence indicated that in the early years of the corporation, the brothers worked six or seven days a week but only received salaries of between $9,000 and $12,000 per year. The brothers testified that while their services were worth between $15,000 and $18,000, they desired to keep money in the corporation for the continued growth and success of the business.
In the years questioned by the Commissioner, the one brother was paid between $11,500 and $15,000 per year- even though his services in these years were minimal.
The Tax Court found the salaries to be reasonable as they compensated the taxpayer for services he had performed for the predecessor corporations in prior years for which he had been underpaid. The evidence showed that the taxpayer and his brother hoped to make up the inadequate compensation they had received in the early years at a later time. The Court felt that the taxpayer was a direct beneficiary of the prior efforts. (R.J. Nicoll Co. v. Commissioner, 59 TC No. 3.)
EMPLOYEE BENEFIT PLAN
Advice was requested of the IRS whether the following profit-sharing plan qualified in the year prior to when it was communicated to the employees. The board of directors of a corporation approved and reduced to writing a profit-sharing plan on December 29, 1970. The employees to he covered under the plan were not informed of the existence of the plan until March 1, 1971. When did the plan qualify?
The IRS explained that as one of the essential elements of a qualified plan, as specified in the Regulations, is that it be communicated to the employees; a qualified plan cannot come into existence until the essential element of communication is satisfied. (Rev. Rul. 72-509.)
DEATH BENEFITS
The IRS Commissioner has acquiesced in (and has thus given greater weight to) a decision of the Tax Court concerning the deductibility of payments of death benefits to the survivors of employees of a family corporation. The question involved was, did the taxpayer have a plan for the payment of death benefits to the families of its deceased employees? There was no written plan.
When presented to the Tax Court to resolve, it was that court's opinion that even though the plan involved was unwritten and informal, such a plan did exist and payments made under it were deductible by the corporation. The court was persuaded by the fact that the family corporation had consistently paid death benefits to the families of deceased employees. It was a pattern sufficiently established so that other employees might expect that, in the event of their death, their beneficiaries would be so treated. (J.C. Nordt Co., Inc. v. Commissioner, 46 TC-431.)
SCAFFOLD VIOLATION REDUCED
A proposed penalty of $700 for a serious violation of the scaffold standards was reduced to $350 by the Occupational Safety & Health Review Commission judge. The violation concerned lack of toe boards, failure to use safety lines and belts. The fine was reduced because no injuries were connected with the condition, the employer was a small business (sole proprietorship with three employees) and it was the employee's deliberate choice not to wear safety equipment provided him by the employer.
Advertisers Index...
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A
AA Wire Products Company 18
Anchor Manufacturing Company 31
B
Bullard (Geo.H.) Company, Inc. 4
E
Robert G. Evans Company (Target) 22
F
Felker Operations, Dresser Industries, Inc. 27
Fleming Devices, Inc. 28
G
Giant Industries 30
Griffolyn Company, Inc. 14
M
Mayco Pump Corp. 33
Morgen Manufacturing Company 4th Cover
N
National Concrete Masonry Association 24
0
Ohio Lime Company 33
Oury Engineering Co., Div. of Harsco Corp. 16
P
Patent Scaffolding Company, Div. of Harsco Corp. 21
Pfizer Minerals, Pigments & Metals Division 12
S
Superior Fireplace Company 11
T
Trinity White, General Portland Cement Company 9
V
Vet-O-Vitz Masonry Systems 2nd Cover
W
Western Products 32
This index is published as a convenience to the reader. Every care is taken to make it accurate but masonry assumes no responsibilities for errors or omissions.