United States Supreme Court Cases & Opinions

U.S. Supreme Court

Lucas v. Ox Fibre Brush Co., 281 U.S. 115 (1930)

Lucas v. Ox Fibre Brush Co.

No. 250

Argued February 28, 1930

Decided April 14, 1930

281 U.S. 115

Syllabus

1. Reasonable compensation allowed by the board of directors of a corporation to its officers in addition to their salaries, for valuable services rendered by them to the corporation, held deductible in computing the net income of the corporation, under § 234(a)(1) of the Revenue Act of 1918, which permits deduction of

"All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered."

P. 281 U. S. 117.

2. Such additional compensation, though made for services rendered in previous years, is deductible from the income of the taxable year in which it was allowed and paid if there was no prior agreement or legal obligation to pay it. P. 281 U. S. 119.

3. Section 212(b) of the Revenue Act of 1918, which provides that the net income shall be computed upon the basis of the taxpayer's accounting period in accordance with the method of accounting regularly employed in keeping the taxpayer's books, but that, if such method does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income, does not justify

Page 281 U. S. 116

the Commissioner in allocating to previous years a reasonable allowance as compensation for services actually rendered when the compensation was properly paid during the taxable year and the obligation to pay was incurred during that year, and not previously. P. 281 U. S. 119.

32 F.2d 42 affirmed.

Certiorari, 280 U.S. 541, to review a judgment of the circuit court of appeals which reversed a decision of the Board of Tax Appeals sustaining a determination of a deficiency in the income tax of the respondent corporation.