Court Opinion

ID: 8590252
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:46:50.473363+00
Date Added: 2024-06-11T16:54:25.240810
License: Public Domain

Madden, Judge,
dissenting.
The court’s opinion says that the payments to the plaintiff were exempt from taxation as “gifts”, because the Government was under no legal obligation to make the payments.. If that were the proper test as to whether a payment is a nontaxable gift, or taxable compensation, many millions of dollars of payments made at about this time of year .would be nontaxable to the recipients. In many such cases there is no-legal obligation to make any payment at all, and in most them the amount of the payment is in the discretion of the- ' employer, and if the payment is not large, the employee is merely disappointed, but has no legal claim. As I understand it, these bonuses are, neverthless, taxed as income. I see no reason why the payments to the plaintiff are not in the same category, for tax purposes.
The plaintiff relies heavily, and practically solely, upon the decision of the Supreme Court in Bogardus v. Commissioner, 302 U. S. 34. In that case, in which four justie dissented, the court said, at page 41:
Neither the Unopco company nor anyone else was under any obligation, legal or otherwise, to pay any of the recipients, including petitioner, any salary, compensation or consideration of any kind. Such is the express stipulation of the parties. And most significant is the further stipulated fact that the disbursements were not made or intended to he made for any services rendered or to be rendered or for any consideratiou given or to be given by any of said employees * * *• (Italics in original.)
In the instant case, the payments were provided by Congress because it thought that the country was under a heavy moral obligation to the civilian employees for their work on the Panama Canal. The sole and single purpose of the statute was to give them additional compensation for services rendered. The Bogardus case, then, does not sustain the plaintiff’s contention. The case of Old Colony Trust Company v. Commissioner, 279 U. S. 716, at page 730, refuses the plaintiff’s contention. The court said:
Nor can it be said that the payment of the tax in .Wo. 130. vras a gift. The payment for services, though on-*641tirely voluntary was nevertheless compensation .within the statute. (Italics added.)
The court cited with approval the decision of the Circuit Court of Appeals for the Fourth Circuit in Noel v. Parrott, 15 F. (2d) 669, where Judge Parker, in a well reasoned opinion considered the question of the taxability of bonuses to employees.
This court, in Schumacher v. United States, 74 C. Cls. 720, had essentially the same problem as is involved in the instant case. One whose employment had ceased, and who had been paid all that was legally owed him, was awarded a bonus by his former employer. The court held that it was not tax-exempt as a gift.
The provision in Section 7 of the statute providing for the plaintiff’s annuity, that the amounts payable thereunder are not assignable or subject to legal process does not show a Congressional intent to make them exempt from income tax. Section 14 of the Civil Service Eetirement Act, 14 Stat. 614, 5 U. S. C. 1946 ed. Sect. 729, provides for a similar exemption from legal process, yet such annuities are taxable as income. T. D. 3112, 4 Cum. Bull. 76 (1921); IT 2984, XV 1 Cum. Bull. 87 (1936); T. D. 5208, 1943 Cum. Bull. 65. I see no reason why the plaintiff’s annuity as a former civil servant should be in a different status from those paid under the Civil Service Retirement Act. Neither statute contains any express provision as to the taxability vel non of the annuities created by it.
In the Railroad Retirement Act of 1935, C. 812, 49 Stat. 967, as amended in 1937, 50 Stat. 307, Section 12 provided, as does Section 7 of the Act creating the plaintiff’s annuity, that payments to retired railway employees should not be subject to legal process. But in the very same sentence Section 12 provided that the railway employees annuity should not be subject to any tax. The same thing was done in the World War Adjusted Compensation Act, C. 157, 43 Stat. 121, Sect. 308, 38 IT. S. C. 618, and the World War Veterans Act of August 12, 1935, C. 510, 49 Stat. 609, Section 3, 38 U. S. C. 1946 ed. Sec. 454 a. And by Section 22 (b) (5) of the Internal Revenue Code Congress has exempted from taxation *642pensions, annuities and similar allowances received by members of the armed forces for personal injuries or sickness resulting from active service. It is plain, then, that. Congress customarily makes express provision for the exemption from taxation of annuities,, retirement pay and similar allowances created by it, if it intends that they should be exempt.
The fact that the House and Senate Committee Reports in 1947 described the annuities provided in the Act of 1944 as “gratuities” seems to me not to be significant. They were of course gratuities in the sense that there was no legal obligation to make them. But they were, without question, made as additional compensation for past services.
The fact that the Government was the employer in this case gives it a turn somewhat different from those involving private employers. When the latter pay bonuses, they deduct them from their income as business expenses, compensation paid to employees. If they were, for tax purposes, gifts, they could not, of course, be so deducted. But they are, when reasonable in amount, permitted to be deducted. And it would be unreasonable to permit the employer to deduct them as compensations paid to employees, and at the same time allow them to-be tax-free to the employees as gifts. In the instant case the Government, a non-taxpayer, being the employer, there was no occasion for it to classify the payments expressly as gifts or compensation. But that is no reason why the receiver of the payment should be treated more generously, for tax purposes, than he would have been treated had his employer been a taxpayer.
I think the plaintiff should not recover.
In accordance with the opinion of the court, and on a stipulation by the parties showing the amount due thereunder, it was ordered March 4,1952, that judgment be entered for the plaintiff in the sum of $149.48 for the calendar year 1944 and $255.09 for the calendar year 1945, a total of $404.57, with interest as provided by law.