Before SCHNACKENBERG and CASTLE, Circuit Judges, and GRUBB, District Judge.
SCHNACKENBERG, Circuit Judge.
From the Tax Court's decision determining deficiencies in income tax of Huckins Tool and Die, Inc., an Indiana corporation, petitioner, for the years 1951, 1952, and 1953, it appeals to this court.
The court heard the testimony of witnesses and received documentary evidence. Based thereon, as well as upon a stipulation of facts, the court made findings of fact, the most salient of which we now state, in substance.
Petitioner was organized under Indiana law in 1937. In the taxable years of 1951-1953 inclusive, ownership of the outstanding shares of petitioner was as follows:
James R. Huckins 501 shares
Robert J. Huckins 249 shares
Richard E. Huckins 249 shares
These persons were also petitioner's board of directors. In these years the officers were: James R. Huckins, president, Robert J. Huckins, secretary and assistant treasurer, and Richard E. Huckins, treasurer. James R. is the father of Robert and Richard.
In the taxable years the petitioner's plant and principal place of business of a tool and die shop was located in South Bend, Indiana, where it was operated under the direction of the officers who devoted their time and efforts exclusively thereto. In a tool and die business the complexities of design and fabrication are such that highly skilled labor and technical skill are required to manufacture tools, dies and fixtures where tolerances in some instances must be held to a range of no greater than.0001 of an inch.
James R. Huckins was born in 1889, Richard E. in 1918 and Robert J. in 1915.
During the taxable years petitioner had no pension or profit-sharing plan, or any other form of deferred compensation plan except a small group life insurance plan which included all employees and which insured the life of each executive. On January 30, 1950, petitioner's board of directors fixed the following basic salaries: James R. Huckins, $36,000; Robert J. Huckins, $24,000; and Richard E. Huckins, $24,000. At the same time and again in each taxable year the board adopted a resolution providing for supplemental annual compensation of 30 percent of petitioner's net earnings before federal income taxes, the amount to be apportioned according to the following ratio: James R., three-sevenths; Robert J., two-sevenths; and Richard E., two-sevenths.
Under these arrangements the following amounts of compensation were paid:
James R. Huckins $54,177 $73,999 $64,220 $77,795
Robert J. Huckins 36,118 49,332 42,813 51,863
Richard E. Huckins 36,118 49,332 42,813 51,863
$126,413 $172,663 $149,846 $181,521
The type of plan on which the compensation was based, namely, a base salary plus a bonus of a share of the profits, is neither unusual in industry in general, nor in the tool and die business in particular. Such a plan had been in effect in the petitioner's business for a long period of time, altho the above plan or formula began in 1950.
Petitioner's books and federal income tax records reflect the following:
Officers' Salaries Net Income