Estate of E. W. Chism, Deceased, Clara Chism, and Clara Chism v. Commissioner of Internal Revenue

This is a proceeding to review a decision of the Tax Court redetermining deficiencies in the income taxes of E. W. Chism and his wife, Clara Chism, for the years 1952 through 1956. Clara Chism appears in her own right and as executrix of the estate of her deceased husband who died on December 27, 1956.

During the years in question the Chisms and their daughter, Alice Jane Frazer, owned all of the stock of Chism Ice Cream Company, a Nevada corporation. E. W. Chism, who was president of the company, owned 71,500 shares. Mrs. Chism, who was corporate secretary, owned 67,500 shares, and their daughter, who was vice-president, owned 51,000 shares. During these years Chism drew an annual salary of $24,000 and the daughter an annual salary of $5,000. Mrs. Chism received no salary.

Also during those years, and for several years before, Chism and his wife withdrew substantial additional amounts from the corporation. These withdrawals were recorded on the books of the company in an account entitled “E. W. Chism — Note Receivable.” They were never evidenced by promissory notes or other written instruments, no interest was ever paid or charged on the outstanding balance, and no collateral…