Klamath Medical Service Bureau v. Commissioner of Internal Revenue

This is a petition for review of federal income taxes for the years 1951, 1952 and 1953. Timely petition to this Court was made after decision in the Tax Court. This Court has jurisdiction under Int. Rev.Code of 1954 § 7482, 26 U.S.C. § 7482 .

The question presented is whether the Tax Court’s determination that those amounts distributed by taxpayer to its stockholder physicians in excess of their billings for services rendered were nondeductible distributions of corporate income, rather than compensation for personal services within the meaning of § 23(a) of the Int.Rev.Code of 1939. The corporation took the latter position and accordingly filed returns on this basis during the years in question. The Commissioner rejected this and determined deficiencies.

I — Facts

The ease was submitted on a stipulation of facts supported by exhibits and some oral testimony. The facts must be understood. As found by the Tax Court, they may be summarized briefly as follows:

Petitioner is an Oregon corporation, organized in 1939, largely engaged in the business of selling prepaid medical, surgical and hospital plans or contracts in Klamath County, Oregon, and providing the medical and surgical…