Court Opinion

ID: 9456924
Source: CourtListenerOpinion
Date Created: 2023-08-04 20:06:13.980212+00
Date Added: 2024-06-11T17:35:08.763536
License: Public Domain

DAVIS, Judge
(dissenting in part):
Ritter v. United States, 393 F.2d 823, 183 Ct.Cl. 875, cert. denied, 393 U.S. 844, 89 S.Ct. 127, 21 L.Ed.2d 115 (1968), ruled the reimbursement of “indirect” moving expenses to be taxable income to existing employees. Other courts have taken the same position. Commissioner of Internal Revenue v. Starr, 399 F.2d 675 (C.A.10, 1968); England v. United States, 345 F.2d 414 (C.A.7, 1965), cert. denied, 382 U.S. 986, 86 S.Ct. 537, 15 L.Ed.2d 475 (1966); Lull v. Commissioner, 51 T.C. 841 (1969); see Commissioner of Internal Revenue v. Mendel, 351 F.2d 580, 582 (C.A.4, 1965).1 It is from this now-established baseline that we must measure the claim that this kind of reimbursement does not constitute “wages” under §§ 3401-02 of the Internal Revenue Code, i. e. “remuneration * * * for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash * *
On the precise point there are no controlling decisions. There is, likewise, very little direct comfort in the legislative history of §§ 3401-02 (or their predecessors). Nor is it easy to draw any firm principle out of the series of Internal Revenue Service rulings in this area.2 As in Ritter, (see 393 F.2d at 832, 183 Ct.Cl. at 890), I am able to discern the path only by looking to the statute in the light of the relevant Supreme Court opinions. The opening through the tangle emerges from the consistent rationale of the line of decisions holding comparable kinds of payments by employer to existing employee, as such, to be taxable income to the latter.
This reiterated principle is that a payment of the type involved here — not a bona fide gift, a transfer for value received, reimbursement of expenses for the employer’s own benefit, or a dividend —is taxable compensation for services rendered by the employee to the employer. In Old Colony Trust Co. v. Commissioner of Internal Revenue, 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918 (1929), the Court held employees taxable on the amount of their income taxes paid by their employers, saying “The payment of the tax by the employers was in consideration of the services rendered by the employee, and was again derived by the employee from his labor”, “The taxes were paid upon a valuable consideration, namely, the services rendered by the employee and as part of the compensation therefor” (p. 729, 49 S.Ct. p. 504), and “The payment for services, even though entirely voluntary, was nevertheless compensation within the statute” (p. 730, 49 S.Ct. p. 504). Commissioner of Internal *1371Revenue v. Smith, 324 U.S. 177, 65 S.Ct. 591, 89 L.Ed. 830 (1945), the first stock option case, likewise spoke of “any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected”, and of “compensation for services” (pp. 181, 182, 65 S.Ct. p. 593). And Commissioner of Internal Revenue v. LoBue, 351 U.S. 243, 76 S.Ct. 800, 100 L.Ed. 1142 (1956), the more recent stock option case, said that since “the employer’s transfer of stock to its employee LoBue for much less than the stock’s value was not a gift, it seems impossible to say that it was not compensation” and “[w]hen assets are transferred by an employer to an employee to secure better services they are plainly compensation”, and “LoBue received a very substantial economic and financial benefit from his employer prompted by the employer’s desire to get better work from him. This is ‘compensation for personal service’ within the meaning of § 22(a) [of the 1939 Code]” (p. 247, 76 S.Ct. p. 803, see also p. 248, 76 S.Ct. 800).
This is the theory behind Ritter — that the employer reimburses “indirect” moving expenses in order to induce his employee to stay with the company and to continue to render services3 — and it seems to me to compel the holding that the reimbursement payments involved there and here are taxable to the employee because they are compensation for services, just like traditional wage or salary payments, and not because they are a unique or sui generis sort of payment falling outside of the “compensation” category but still within § 61(a). Of course, the employees gave no services while they were in the process of moving, but taxable “compensation” has never been limited to payment for work during particular time periods. See S.Rep.No.221, 78th Cong., 1st Sess., p. 28, 1943 Cum.Bull. 1314, 1335. This is proved by the tax treatment, for instance, of special bonuses, or reimbursement of income taxes, or the grant of stock options, or the supplying of a house. These same examples also prove that the services need not be already performed or done in the past; it is compensation to make a payment “to enlist more efficient service”, “to secure better services”, or because of “the employer’s desire to get better work from” the employee. Commissioner of Internal Revenue v. LoBue, supra, 351 U.S. at 247, 76 S.Ct. at 803. Cf. Social Security Board v. Nierotko, 327 U.S. 358, 365-366, 66 S.Ct. 637, 90 L.Ed. 718 (1946). That was plainly Humble’s goal in this instance.4
Cases like Peoples Life Insurance Co. v. United States, 373 F.2d 924, 179 Ct.Cl. 318 (1967), seem to me quite different. Those payments were not taxable to the employee and were not compensation. The employer’s purpose (properly stressed in the opinions) has a part in deciding whether a payment is taxable to the employee. But when it is determined, as Ritter did, that the payment is taxable, that holding must also mean that the payment is not exclusively or pri*1372marily for the employer’s own purposes or benefit.5
At the bottom of the opposition to the Government’s position, it seems to me, is the feeling that the withholding provisions of §§ 3401-02 should be restrictively read because the Federal Government is imposing on the employer the involuntary and unpaid role of tax collector, and at the same time is attempting for its own convenience to garner the employees’ taxes from their employer. My difficulty with that predicate is that, whatever differing views citizens can take on the withholding device, Congress has unequivocally adopted and maintained it for almost thirty years. There is no legislative indication that §§ 3401-02 are to be given a niggardly reading while their counterpart, § 61(a), is to be read broadly. On the contrary, both provisions seem to have been viewed all along as in vari materia, with the withholding sections aimed at collecting all the compensation which employees must report as income, except where specific exceptions have been made. See H. Rep. No. 401, 78th Cong., 1st Sess., pp. 2, 8-11 (1943 Cum.Bull. 1283, 1288-90); S.Rep. No.221, 78th Cong., 1st Sess., p. 1 (1943 Cum.Bull. 1314); § 213(a) and (c) of the Revenue Act of 1964, P.L. 88-272, 78 Stat. 19. I think we should apply that Congressional policy here.6
FINDINGS OF FACT
1. The plaintiff is a corporation organized and existing under the laws of the State of Delaware and has its principal office at 800 Bell Avenue, Houston, Texas. The plaintiff’s principal business is producing, refining, transporting, buying and selling crude petroleum and petroleum products at wholesale and retail.
2. The plaintiff timely filed its Federal employment tax returns for the calendar year 1961, and timely paid the tax liability shown thereon. Thereafter, the Commissioner of Internal Revenue assessed a deficiency in withholding taxes against the plaintiff in the amount of $590,416.60 for 1961.
3. On December 14, 1964, the plaintiff paid the $590,416.60 deficiency assessed plus $116,607.28 interest thereon, and, in March 1965, received a refund of $1,666.12 representing an overpayment of interest. The plaintiff timely filed a claim for refund in the amount of $705,-357.76 on the grounds that (1) the Commissioner of Internal Revenue had erroneously determined that certain moving expense payments made in 1961 by the plaintiff to or on behalf of its employees were “wages” as defined by section 3401 of the Internal Revenue Code, and (2) the Commissioner of Internal Revenue had also erroneously determined that the plaintiff was required in 1961 to withhold taxes on such payments and was liable for a tax of $500,353.04 for failure to withhold taxes.
4. The defendant has administratively refunded a part of the deficiency and assessed interest. The amount of the deficiency remaining in controversy is $500,353.04 plus assessed interest thereon. The Commissioner of Internal Revenue assessed this deficiency in withholding taxes against the plaintiff on the ground that the plaintiff should have withheld taxes on $2,779,739.23 which it paid in 1961 to or on behalf of its employees incident to their moving to new places of employment. The Commissioner of Internal Revenue arrived at the $500,353.04 tax deficiency by taxing these payments at the rate of 18 percent.
EXISTING EMPLOYEES
5. During the period in question, the plaintiff maintained offices in numerous *1373locations throughout the United States. In order to meet its business requirements at these locations, the plaintiff from time to time needed the services of various of its employees at locations different from those at which the employees had previously been working. When this occurred, a representative of the plaintiff asked the employee to move and take up work at the new location, and stated to him the plaintiff’s offer of employment at the new location and the alternatives open to the employee. Sometimes the employee’s old job was available to him only in the new location and only a lesser position, or none at all, was open at the old location. Sometimes the employee was offered a better position or a higher salary at the new location. In either case, the plaintiff offered to pay or reimburse the employee for various expenses incident to moving to the new place of employment, if the employee moved' to the new location and began work for plaintiff there. The particular reimbursements and payments plaintiff offered to make, and the conditions under which they were to be made, were set forth in the “Temporary Resettlement Policy Effective for the Year 1961.” This policy had company-wide application.
6. Plaintiff corporation resulted from a 1959 merger of Esso Standard Oil Company, Carter Oil Company, and Humble Oil & Refining Company, a Texas corporation. In 1960, plaintiff decided to move the entire New York City headquarters’ operation of the former Esso Standard Oil Company to Houston, Texas. This move of the Esso operation from New York took place in 1961. In order to achieve the move with as little disruption as possible, plaintiff requested hundreds of its employees, both managerial and clerical, to move from New York to Houston. The employees were advised that the company, under its resettlement policy, would either directly pay for, or reimburse the employees, for the bulk of their expenses incurred in moving. As one witness described it, the company policy was to make the moving employee “whole” to the end that he would not be “out of pocket to a great extent.”
The resettlement policy, which was adopted in 1961 on a company-wide basis, was the same policy which had been used by Esso Standard Oil Company since at least 1953. The resettlement policies of Carter Oil Company and Humble Oil & Refining Company of Texas, prior to the merger and up to 1961, were less liberal, in that they provided reimbursement for only direct moving costs, whereas plaintiff’s resettlement policy also provided reimbursement for many types of indirect costs.
Most of the people in the New York office had never moved at the company’s request before, but they were well aware of the Esso policy to reimburse its employees for most of their moving expenses.
7. From the testimony of a number of plaintiff’s employees, it is apparent that the primary motivating factor in their agreeing to move from New York to Houston was the fact that their job was being moved to Houston, and they desired to continue their employment with plaintiff. Not much thought was given to the matter of moving expenses, since they knew that plaintiff would take care of those expenses for the most part. Of course, plaintiff was aware that its resettlement policy made the employee’s decision easier and constituted an added inducement to move. From plaintiff’s standpoint, its policy of paying employee moving expenses constituted ordinary and necessary business expenses which helped the company to retain the services of experienced and competent employees.
8. As a further aid to its employees in arriving at their decision, plaintiff caused to be prepared a 17-page booklet entitled Welcome to Houston which af*1374forded a great deal of information about Houston, its housing, churches, schools, weather and other matters. One and a half pages of the booklet were devoted to a discussion of the logistics and costs of moving, and plaintiff explained:
When you pick up and move your entire household from one city to another, there is a good bit of cost involved. When the Company transfers you, it expects to bear the reasonable costs of the move, and has an established policy, known as the Resettlement Policy, that sets up the guidelines for all transfers. Your supervisor in your new job will talk to you in detail about how this policy will affect you, but here is a general summary of the provisions of the policy. (For permanent transfers only.)
Also, the booklet described the problems incident to selling and buying homes, and explained the extent to which plaintiff would reimburse an employee who suffered a loss in selling his old house. Meetings were held in New York, to which the employees were invited in groups of about 50 each. At the meetings, further information was given about living and working conditions in Houston and employees’ questions were answered. At these meetings and on other occasions, the employees were assured that plaintiff would pay or reimburse them for certain costs connected with their transfer from New York to Houston. In Houston, a man was assigned full-time to greeting the newcomers and helping them in adjusting to their new environment.
9. The plaintiff did not request any commitment from an employee who was being transferred that he would continue working for the plaintiff for any stated period of time after the employee moved and received reimbursement for moving expenses under the resettlement policy. It was not thought necessary to do so because any employee who moved to Houston obviously intended to keep his job with the company. The only commitments in effect during 1961 were certain employment contracts signed by professional and technical employees which required 60 to 90 days’ notice of termination if an employee wished to terminate his employment. These contracts also bound the plaintiff to provide the same notice if it wished to terminate an employee’s employment. The contracts were in effect whether or not an employee was transferred.
10. In addition to the movement of its employees from New York to Houston plaintiff also moved between five to seven hundred other employees from one location to another in 1961, in individual moves. This is a normal incident of plaintiff’s business, and the 1961 resettlement policy applied to those moves also.
Plaintiff never asked an employee to move, unless it needed and wanted his services elsewhere. The expenses of moving employees were charged to the operational expenses of the department receiving the employee in order to insure that moves were not made unless the receiving department actually needed his services.
NEW EMPLOYEES
11. Also, in order to meet its business requirements at various locations, the plaintiff from time to time needed the services of various persons who had not been previously employed by the plaintiff, and who had previously been living in places different from the locations in which the plaintiff wanted them to work. When this occurred, a representative of the plaintiff asked the prospective employee to move and take up work with the plaintiff at the new location. The representative of the plaintiff stated the nature and terms of the employment offered, and informed the prospective employee of the plaintiff’s offer to pay, or reimburse him for, various moving ex*1375penses if the employee moved to the new location and began work for the plaintiff there. The resettlement policy had no application to these new employees, but was applicable only to regular employees transferring from one unit of the company to another. New employees (generally college recruits) were paid only direct moving expenses from their home or college location to their first work assignment.
PAYMENTS AND REIMBURSEMENTS MADE
12. When an existing employee moved and took up his work with the plaintiff in the new location, the plaintiff made the reimbursements and payments set out in the resettlement policy as it had agreed. The moving expenses were sometimes paid directly by the plaintiff, and sometimes paid by the employee who was thereafter reimbursed by the plaintiff. The payments which the plaintiff made to or on behalf of its new and existing employees for 1961 can be separated into the following categories:
(a) Expenses incurred by new employees: Expenditures for moving household goods and personal effects to new locations, transportation of families to the new locations, and meals and lodging en route to the new locations__________ $46,130.98
(b) Expenses incurred by existing employees in moving themselves, their immediate families, and household goods and personal effects to the new locations_______________ 1,945,438.23
(c) Expenses incurred by existing employees in the sale of their residences: Brokers' commissions, expenditures in preparing residences for sale, costs of advertising, deed costs, mortgage prepayment penalties, closing costs and fees______ 959,205.43
(d) Expenses incurred by existing employees in purchasing new residences: House-hunting trips, interest on loans, expenditures for acquiring mortgages and securing title policies, recording fees, loan papers, credit reports, surveys, restrictions, escrow fees, closing costs and fees______ 443,224.03
(e) Expenses incurred by existing employees in occupying new residences: Installation of appliances, refitting rugs and drapes, painting, decorating and carpentry________________ 240,711.80
(f) Other expenses incurred by existing employees: Interim living expenses, expenses of interim trips to new locations, and miscellaneous expenses _____________________ 767,109.89
(g) Amounts paid to existing employees representing in the case of each employee to whom payment was made, an amount equal to 75 percent of the excess of an appraised value of the employee's old house over its actual selling price (provided that the employee placed his house for sale on multiple listing, or with two or more brokers, and then was unable to sell the house for as much as its appraised value)__________ 323,357.10
13. With respect to the amounts paid to existing employees referred to in finding 12(g), the appraised value was fixed by the plaintiff on the basis of two independent appraisals obtained by the plaintiff. The plaintiff maintained a list of independent professional appraisers and from this list would select two appraisers. The appraisers would be requested to submit an appraisal on a form developed by the plaintiff and bill the plaintiff for the appraisal cost. If there was a wide difference between the first two appraisals, a third appraisal would be obtained. There was no specified time that an employee had to keep his house on the market before he could sell for a price that was less than the appraised value; however, each employee was advised that before he entered into such a contract for sale he should get approval of the sale from his supervisor. In some cases where an employee received low offers, it was felt necessary to provide guidance to the employee. The plaintiff would not approve the sale and would recommend changing real estate brokers or would point out that the appraisals were fair indications of the market price and that it was reasonable to wait until an offer at or close to the market price was received.
14. The expenses incident to moving to the new place of employment referred to in finding 12 were incurred because of moves that the plaintiff’s employees made at the plaintiff’s request and pursuant to its offers to pay or reimburse the employees as described above. The amount upon which the Commissioner of Internal Revenue assessed withhold*1376ing tax was the $2,779,739.23 itemized in subparagraph (a) and subparagraphs (c) through (g) of finding 12; no withholding tax was assessed upon the amount set out in subparagraph (b) of finding 12.
15. The plaintiff is in the petroleum industry where employees are often moved for plaintiff’s convenience from one location to another in the normal course of doing business. As a result the plaintiff developed its resettlement policy to cover expenses which it considered to be ordinary and necessary business expenses and which should be assumed by an employer. The plaintiff paid all the expenses itemized in subparagraphs (a) through (g) of finding 12 because it was the plaintiff’s experience that these are the type of expenses which would normally be incurred by its employees in moving from one location to another. However, its employees incurred additional expenses incident to a move which were not covered by the resettlement policy, and these amounts were not paid or reimbursed by the plaintiff.
16. It has been the plaintiff’s compensation policy to pay a salary to each employee according to the value of his services and to maintain uniform salaries throughout the company for employees who perform similar services. As a result, the plaintiff has kept its compensation policy completely separate and distinct from its resettlement policy. Neither the plaintiff nor its employees considered the payments made under the plaintiff’s resettlement policy to constitute remuneration for services.
CONCLUSION OF LAW
Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover, and judgment is entered to that effect, with the determination of the amount of recovery to be reserved for further proceedings under Rule 131(c) in accordance with this opinion.

. Cf. Koons v. United States, 315 F.2d 542 (C.A.9, 1963); Bradley v. Commissioner of Internal Revenue, 324 F.2d 610 (C.A.4, 1963); United States v. Woodall, 255 F.2d 370 (C.A.10, 1958); Kobacker v. Commissioner, 37 T.C. 882 (1962) — all dealing with new employees.

. See Rev.Rul. 59-371, 1959-2 Cum.Bull. 236; Rev.Rul. 59-236, 1959-2 Cum.Bull. 234; Rev.Rul. 59-227, 1959-2 Cum.Bull. 13; Rev.Rul. 58-301, 1958-1 Cum.Bull. 23; Rev.Rul. 58-145, 1958-1 Cum.Bull. 360; Rev.Rul. 55-140, 1955-1 Cum.Bull. 317; Rev.Rul. 55-520, 1955-2 Cum.Bull. 393; Rev.Rul. 54-429, 1954-2 Cum.Bull. 53; Rev.Rul. 190, 1953-2 Cum.Bull. 303.

. Significantly, the court’s ojrinion in Rit-ter quotes only the first subdivision of § 61(a), subdivision (1) relating to “Compensation for services, including fees, commissions, and similar items.” 393 F.2d at 826, 183 Ct.Cl. at 880.

. The new legislation (effective from 1970 on), in which Congress expressly designated the reimbursement of moving expenses as “compensation for services”, shows that it is natural and unstrained to characterize the payments as “compensation”. See. 231 of the Tax Reform Act of 1969, P.L. 91-172, 83 Stat. 487, adding a new § 82 to the Internal Revenue Code. I cite the statute only for this limited purpose, not as proving that Congress was simjjly “declaring” the existing law. As the court’s opinion indicates, nothing solid as to Congress’ view of the pre-existing law can be drawn from the legislative history of the new § 82 of the Code, and it would be fruitless to try to divine from that history whether Congress thought it was declaring, clarifying, or changing the law. But it is pertinent to point out that Congress did not hesitate to call these payments “compensation”.

. Insofar as Peoples Life may possibly suggest by implication (see 373 F.2d at 932-933, 179 Ct.Cl. at 332-334) that, apart from the effect of specific revenue regulations, reimbursement of expenses can readily constitute income to the employee while still falling outside of the category of “wages” for withholding purposes, I would now disagree.

. It goes without saying that I agree with the court that plaintiff is liable for the tax on the reimbursement of the moving expenses of new employees.