Langer's Estate v. Commissioner of Internal Revenue

R. L. Langer, now deceased, and C. A. Lindsey were, during the period in question, ■officers and employees of Commodore Hotel Co., Ltd., a California corporation. Although claiming to be entitled by corporate action to compensation of $600 per month each, neither received any salary during the years from 1938 through 1942. In each of those periods, through 1941, Commodore suffered operating losses, its balance sheets showing continuing deficits. Throughout the period, the corporation’s hotel building, fixtures and furnishings were subject to a deed of trust and chattel mortgage securing a promissory note payable to Pacific Mutual Life Insurance Co., on which Commodore was chronically in default. However, in January, 1943, Commodore, having in 1942 for the first time for a number of years, realized operating profits after making the required installment payments on its indebtedness to Pacific, had become financially able to resume payment of salaries to Langer and Lindsey; and, in January, 1944, the board of directors ordered payment of the accrued back salaries as rapidly as the corporation’s financial condition would warrant. Pursuant to this action, Langer and Lindsey each…