Court Opinion

ID: 4610604
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:47:14.455314+00
Date Added: 2024-06-11T07:59:39.436387
License: Public Domain

ARTHUR L. LOUGEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lougee v. CommissionerDocket No. 45391.United States Board of Tax Appeals26 B.T.A. 23; 1932 BTA LEXIS 1378; May 10, 1932, Promulgated 1932 BTA LEXIS 1378">*1378 Held, that payments made to a former official of a corporation after his resignation constituted additional compensation for services rendered and not a gift.  Nelson B. Vanderhoof, Esq., for the petitioner.  W. F. Wattles, Esq., for the respondent.  VAN FOSSAN 26 B.T.A. 23">*24  Petitioner asks redetermination of a deficiency of $1,136.23 in income taxes for the year 1926.  His contention is that a sum of $16,000 held by respondent to be taxable as income was paid to and received by him as a gift.  FINDINGS OF FACT.  For 40 years prior to May 1, 1926, petitioner had been employed by Heywood-Wakefield Company - for the last five years as general sales manager.  His salary as such official was $24,000 per year.  He had no contract of employment.  Some time in April of 1926 Levi H. Greenwood, the president of the company, asked petitioner for his resignation.  Though surprised at the request petitioner complied therewith and orally tendered his resignation.  A few days thereafter Greenwood told petitioner the company would pay him a year's salary.  Petitioner had not suggested or requested any such action.  Petitioner asked that the promise be put in1932 BTA LEXIS 1378">*1379  writing.  Under date of April 23, 1926, Greenwood wrote petitioner the following letter: While I do not feel it proper that I should attempt to bind my successor to a continuance of the arrangement outlined herewith, nor myself, if financial conditions of the corporation should not warrant it, still I want you to know that it is my intention to continue your salary for a period of one year from the date when you leave the employ of the corporation, namely, May 1st, 1926, and I have asked Mr. Perry to follow that procedure.  Since in a way these future payments are not in the nature a salary, but are rather a "honorarium," it is my intention that even in the event of your decease, they should continue for the period indicated.  I fully believe that we shall be able to fulfill this obligation to you, for I believe it is indeed an obligation on our part to one who has served the corporation for over forty years earnestly and faithfully.  Though there had been instances where payments had been made to former employees after resignation there was no established or recognized custom of paying pensions or bonuses.  Petitioner had no intimation that his services were not satisfactory1932 BTA LEXIS 1378">*1380  and at the time his resignation was requested no substantial reason was assigned therefor.  The company paid petitioner at the rate of $2,000 per month regularly after May 1, 1926, up to and including December 31, 1926, making $16,000 in all.  On January 17, 1927, petitioner received the following letter from Greenwood: Prevailing conditions in the furniture industry and the consequent reduction in earnings of this corporation have forced me, most unwillingly, to institute economies wherever possible.  Certain salaries have been reduced and so-called pensions also reduced or cut out altogether.  Under these conditions I am forced to the conclusion that it is necessary that the payments being made to you be discontinued.  26 B.T.A. 23">*25  In my letter to you of April 23d, 1926, I intimated that these payments could not be continued if financial conditions of the corporation should not warrant it, and such seems to me to be now the case.  Final check will therefore be sent you on February 1st.  I very much regret this, but I do feel that in view of the fact that other economies have been instituted which are occasioning much more discomfort than this will cause you, I cannot in fairness1932 BTA LEXIS 1378">*1381  do otherwise in your case.  I hope you will feel even though the time has been shortened by a quarter, that the corporation has treated you fairly.  I tried to do so anyway, and very much regret that conditions do not warrant my carrying through the arrangement to the date originally set - namely, May 1st.  Petitioner received no further payments after February 1, 1927, and no communications from Greenwood after the above letter.  On the corporate record of employment showing petitioner's salary at the rate of $24,000 per year, there appears a typed note as follows: Note: Mr. Lougee's salary is to continue for one year from May 1, 1926, payable and it is understood that if at any time before the expiration of the period Mr. Lougee wants to ger the balance due him for the purpose of buying an interest in some enterprise in which he may wish to engage, we will pay it to him if our finances will comfortably allow it.  No record of official corporate action authorizing the payments was presented.  The treasurer of the company treated the payments as expense items and claimed deductions on account thereof in the tax return of the company.  OPINION.  VAN FOSSAN: Whether1932 BTA LEXIS 1378">*1382  a payment is a gift depends, first, on the intention of the alleged donor.  If the intention be present, then the acceptance and factual accomplishment are important elements.  If the intention of the donor be absent it matters not how the recipient considered or treated the payment.  Intention may gathered from expressed purpose or inferred from surrounding facts and circumstances.  Here the record reveals that Greenwood promised orally to pay an additional year's salary.  When asked to put the promise in writing he complied, again characterizing the same as salary.  Though he suggested that "in a way these future payments are not in the nature of salary, but are rather an honorarium, he went further and clearly expressed the reason impelling the payments as in recognition of "an obligation on our part to one who has served the corporation for over forty years earnestly and faithfully." This statement clearly shows the payments to have been considered by Greenwood to be in consideration of the services rendered and, therefore, additional compensation.  The the next communication, that terminating the payments, Greenwood again suggests the consideration for the payments when he1932 BTA LEXIS 1378">*1383  says, "I hope you will feel even though the time has been shortened a quarter, that the corporation has treated you fairly." 26 B.T.A. 23">*26  Corroborative of the above is the entry on petitioner's employment record, "Mr. Lougee's salary is to continue for one year * * *." But perhaps more persuasive as showing the corporate intention are the facts that the books of the corporation showed the payments as expense items and the corporation claimed the same as deductions in its tax return.  Thus the record of the company, consistently from first to last, negatives the contention of petitioner that the payments were gifts.  That being our conclusion, the intention is absent, and it is unnecessary to consider other elements.  See , and cases cited. Reviewed by the Board.  Decision will be entered for the respondent.