Source: https://supreme.justia.com/cases/federal/us/302/34/
Timestamp: 2019-04-25 13:59:19+00:00

Document:
1. A conclusion by the Board of Tax Appeals which is but a conclusion of law or a determination of a mixed question of law and fact based upon other facts found is subject to review. P. 302 U. S. 38.
2. A payment cannot be both "compensation for personal service" within the meaning of § 22(a) of the Revenue Act of 1928 and a "gift" under (b)(3) of the same section. Old Colony Trust Co. v. Commissioner, 279 U. S. 716, distinguished. P. 302 U. S. 39.
3. Payments made to present and former employees of a corporation by its former stockholders, acting through a new corporation which had taken over part of the property of the other, held not "compensation for personal services," taxable to the recipients as income under § 22(a) of the Revenue Act of 1928, but "gifts," exempted from taxation by subdivision (b)(3) of that section. P. 302 U. S. 40.
No connection subsisted between the old corporation or the recipients of the gifts, on the one hand, and the makers of the gifts and their new corporation, on the other. The gifts were made, without any legal or moral obligation, not for any services rendered or to be rendered or for any consideration given or to be given by any of the recipients to the donors or the new corporation, but were acts of spontaneous generosity in appreciation of the past loyalty of the recipients which had redounded to the profit of the donors when stockholders of the older company.
4. When all the facts and circumstances clearly prove an intent to make a gift, the erroneous use of the terms "honorarium" and "bonus" cannot convert the gift into a payment for services. P. 302 U. S. 42.
5. A gift is none the less a gift because inspired by gratitude for the past faithful service of the recipient. P. 302 U. S. 44.
Review by certiorari, 301 U.S. 674, of a judgment which affirmed an order of the Board of Tax Appeals sustaining a deficiency assessment of income tax.
The question for decision is whether a sum of money received by petitioner in January, 1931, was "compensation" subject to the federal income tax, or a "gift" exempt therefrom. The Commissioner held it to be compensation, constituting part of petitioner's gross income, and declared a deficiency. The Board of Tax Appeals sustained the determination of the Commissioner, and the court below, upon review, affirmed the order of the Board. 88 F.2d 646.
Unopco Corporation at the instance of its stockholders to petitioner and others who had theretofore rendered service as employees or in some other capacity to the Universal Oil Products Company. The Universal company was a corporation organized in 1914. In the beginning, its only asset was an application for a patent for a process for refining petroleum and manufacturing gasoline. It thereafter acquired other patents, which it licensed to various producers on a royalty basis. Beginning in 1922, its business developed increasingly until, by 1930, its royalties amounted to about $9,000,000. In January, 1931, its entire stock was sold to the United Gasoline Corporation for $25,000,000. Prior to the sale, and in contemplation of it, the Unopco Corporation had been organized for the purpose of acquiring, and it did acquire, certain assets of the Universal Company of the value of over $4,000,000. Up to the time of this acquisition, the Unopco Company had never engaged in any business activities, and thereafter its only business was the investment and management of the assets thus acquired.
January 9, 1931, and by the stockholders the following day. By these resolutions, it was resolved that the sum of $607,500 be appropriated, paid, and distributed, as a bonus, to 64 former and present employees, attorneys, and experts of Universal Oil Products Company in recognition of the valuable and loyal services of said employees, attorneys, and experts to said Universal Oil Products Company. Payments ranged in amount from $100,000 to $500. Some of the recipients had been out of the employ of the Universal company for many years, and one of them was the sister of an employee killed in an explosion about the year 1919.
Company, * and that neither Unopco nor any of its stockholders, nor any of the stockholders of Universal, was at any time under any legal or other obligation to pay any of said employees, attorneys, or experts, including petitioner, any salary, compensation, or consideration of any kind.
"Said payments were not made or intended to be made by said Unopco Corporation or any of its stockholders as payment or compensation for any services rendered or to be rendered or for any consideration given or to be given by any of said employees, attorneys or experts to said Unopco Corporation or to any of its stockholders."
None of the three corporations or their stockholders ever made or claimed any deduction for federal income tax purposes in respect of the payments made to the petitioner and the others. Payments were charged, in January, 1931, not to expense, but to surplus account on the books of the Unopco Company.
The distribution was made to petitioner and the other employees, attorneys, and experts by checks, delivered either personally or by mail, and in each instance with the accompanying statement that the moneys represented by such checks were given at the instance of the stockholders of the Unopco Corporation as a gift and gratuity, and were therefore not subject to income tax on the part of the recipients.
"the payments made by Unopco to the petitioners and others were additional compensation in consideration of services rendered to Universal, and were not tax free gifts."
"a conclusion of law or at least a determination of a mixed question of law and fact. It is to be distinguished from the findings of primary, evidentiary, or circumstantial facts. It is subject to judicial review and, on such review, the court may substitute its judgment for that of the Board."
Helvering v. Tex-Penn Oil Co., 300 U. S. 481, 300 U. S. 491; Helvering v. Rankin, 295 U. S. 123, 295 U. S. 131. If the conclusion of the Board be regarded as a determination of a mixed question of law and fact, it has, as we shall presently show, no support in the primary and evidentiary facts. The ultimate determination therefore should be overturned, under the doctrine of Helvering v. Rankin, supra, as a matter of law.
The statutory provisions involved are very plain and direct. Section 22(a) of the applicable revenue Act (45 Stat. 791) provides that "gross income," among other things, includes "compensation for personal service, of whatever kind and in whatever form paid." Subdivision (b)(3), immediately following, provides that "the value of property acquired by gift, bequest, devise, or inheritance" shall not be included in gross income, and shall be exempt from taxation under the income tax title.
"Nor can it be argued that the payment of the tax in No. 130 was a gift. The payment for services, even though entirely voluntary, was nevertheless compensation within the statute."
If the sum of money under consideration was a gift, and not compensation, it is exempt from taxation, and cannot be made taxable by resort to any form of subclassification. If it be in fact a gift, that is an end of the matter, and inquiry whether it is a gift of one sort or another is irrelevant. This is necessarily true, for, since all gifts are made nontaxable, there can be no such thing under the statute as a taxable gift. A claim that it is a gift presents the sole and simple question whether its designation as such is genuine or fictitious -- that is to say, whether, though called a gift, it is in reality compensation. To determine that question, we turn to the facts, which we have already detailed.
had the slightest notion that a payment of compensation was to be made.
In sum, then, the case comes to this: the stockholders of the Unopco, having at the time no connection with the Universal Company, but rejoicing in the fact of their own great good fortune, and mindful of the former loyal support of a number of employees of the Universal Company, and desiring to remember them "in the form of a gift or honorarium," resolved to make through the Unopco Company the distribution in question. In doing so, they were moved, as Judge Swan said in his dissenting opinion below, to an act of "spontaneous generosity." We agree with this dissenting opinion of Judge Swan, and the dissenting opinion of Judge Morton in Walker v. Commissioner, supra, as stating the correct view of the matter.
The only facts which even seem to militate against this view are: (1) that the Unopco stockholders had benefited by the former services of the recipients; (2) that the stockholders, at their meeting, described the payment as a gift or "honorarium;" and (3) that the resolutions authorized the payment as a "bonus . . . in recognition of the valuable and loyal services" of the employees, etc.
1. Because the Unopco stockholders had benefited by the past services of the recipients, it by no means follows that the distribution in question was not a gratuity. It nowhere appears in the record that full compensation had not been made for these services. There would seem to be a natural inference to the contrary, and the inference is made determinate by the stipulated fact that no one was under any obligation, legal or otherwise (and this would include a moral obligation, however slight), "to pay any additional compensation." There is no ground for saying that the benefit received and the compensation then paid for it were not equivalents.
broad generalization, it is enough to say that the word is not here used by itself, but coupled with the word "gift" in the phrase "gift or honorarium." Presumptively, the user of the phrase must have known that the word "gift" did not include a compensatory payment, and it is hardly to be supposed that he would consciously nullify that word by the immediate use of another meaning the opposite. The phrase was used in an informal speech at the stockholders' meeting made by the president of the Unopco Company. The whole tone of the meeting indicates that the intention was to make gifts in recognition of, not payments for, former services. The conclusion in which the stockholders acquiesced was that they would come forward and make these "presents or gifts" to the employees. In the light of all the circumstances, the absence of moral or other obligation and of any expectation of future benefit, it is reasonable to conclude that the word "honorarium," if the court below correctly defined it, was loosely and inaccurately used.
this case, was misdescribed in the resolutions to carry the decision and intention into effect. In Rogers v. Hill, 289 U. S. 582, 289 U. S. 591-592, we held, following the dissenting opinion in the court below, that a bonus payment having no relation to the value of services for which it is given is in reality a gift in part. Certainly, where all the facts and circumstances in the case, including the express stipulation of the parties, clearly show the making and the intent to make a gift, it cannot be converted into a payment for services by inaccurately describing it, in the consummating resolutions, as a bonus.
Some stress is laid on the recital to the effect that the bounty is bestowed in recognition of past loyal services. But this recital amounts to nothing more than the acknowledgment of an historic fact as a reason for making the gifts. A gift is none the less a gift because inspired by gratitude for the past faithful service of the recipient. Compare Hobart's Adm'r v. Vail, 80 Vt. 152, 66 A. 820.
* The reference to additional compensation paid by the Universal Company probably refers to a "bonus," which was clearly compensation, paid by that company to its various employees, some 400 in number, in 1930.
MR. JUSTICE BRANDEIS, MR. JUSTICE STONE, MR. JUSTICE CARDOZO, and MR. JUSTICE BLACK, dissenting.
914; Schumacher v. United States, 55 F.2d 1007. Cf. Lucas v. Ox Fibre Brush Co., 281 U. S. 115. Their teaching makes it plain that the categories of "gift" and "compensation" are not always mutually exclusive, but at times can overlap. What controls is not the presence or absence of consideration. What controls is the intention with which payment, however voluntary, has been made. Has it been made with the intention that services rendered in the past shall be requited more completely, though full acquittance has been given? If so, it bears a tax. Has it been made to show goodwill, esteem, or kindliness toward persons who happen to have served, but who are paid without thought to make requital for the service? If so, it is exempt.
We think there was a question of fact whether payment to this petitioner was made with one intention or the other. A finding either in his favor or against him would have had a fair basis in the evidence. It was for the triers of the facts to seek among competing aims or motives the ones that dominated conduct. Perhaps, if such a function had been ours, we would have drawn the inference favoring a gift. That is not enough. If there was opportunity for opposing inferences, the judgment of the Board controls. Elmhurst Cemetery Co. v. Commissioner, 300 U. S. 37; Helvering v. Tex-Penn Oil Co., 300 U. S. 481.

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