C. M. HOSKINS & CO., INC.

vs
COMMISSIONER OF INTERNAL REVENUE
FACTS:
Petitioner is a domestic corporation engaged in the real estate business as brokers, managing agents and
administrators. It fled its income tax return for its fscal year ending September 30, 1!". #pon $erifcation of its
return, %I& disallo'ed four items of deduction and assessed against it an income tax defciency plus interests. (he %()
upheld %I&*s disallo'ance of one of the items of deduction, the payment to +r. ,oskins, -founder and controlling
stockholder. the amount of P,"".1 representing !0/ of super$ision fees earned. Petitioner appeals the %()0s
ruling arguing that payment of the same 'as allo'ed $ia a resolution of the Petitioner0s 1oard of directors.
ISSUE:
2hether or not the payment of +r. ,oskin0s super$ision fees may be deductible from the company0s income tax.
HELD:
(he Supreme %ourt a3rmed the %()0s decision. +r. ,oskins o'ned .4/ of petitioner0s total authori5ed
capital stock and 'as also a salesman6broker recei$ing a !0/ share of the sales commissions earned apart from his
monthly salary, bonuses and allo'ances. %() correctly ruled that the additional payment of P,"".1 could not be
accorded the treatment of ordinary and necessary expenses allo'ed as deductible items 'ithin the pur$ie' of the (ax
%ode.
%onditions precedent to the deduction of bonuses to employees7 -1. payment of the bonuses is in fact
compensation8 -9. must be for personal ser$ices actually rendered8 and -3. bonuses, 'hen added to the salaries, are
:reasonable 'hen measured by the amount and ;uality of the ser$ices performed 'ith relation to the business of the
particular taxpayer.< -=uen5le $. %I&.
>actors in determining the reasonableness of a gi$en bonus as compensation7 -1. amount and ;uality of the
ser$ices performed 'ith relation to the business -9. payment must be *made in good faith* -3.character of the
taxpayer*s business, the $olume and amount of its net earnings, its locality, the type and extent of the ser$ices
rendered -?. salary policy of the corporation -!. si5e of the particular business -4.8*the employees* ;ualifcations and
contributions to the business $enture* -". general economic conditions*.-=uen5le $. %I&.
)llo'ing or disallo'ing as deductible expenses the amounts paid to corporate o3cers by 'ay of bonus is
determined by the %I& exclusi$ely for income tax purposes. +r. ,oskins is practically the sole o'ner of %. +. ,oskins,
but he chose to incorporate his business 'ith himself holding $irtually absolute control thereof 'ith .4/ of its stock
'ith four other nominal shareholders holding one share each. ,a$ing chosen to use the corporate form 'ith its legal
ad$antages of a separate corporate personality as distinguished from his indi$idual personality, the corporation so
created is bound to conduct itself in accordance 'ith corporate norms and comply 'ith its corporate obligations.
Specifcally, it is bound to pay the income tax imposed by la' on corporations and may not legally be permitted, by
'ay of corporate resolutions authori5ing payment of inordinately large commissions and fees to its controlling
stockholder, to dilute and diminish its corresponding corporate tax liability.