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.
88 F.2d 646 reversed.
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.
Page 302 U. S. 35
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
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.
The decisions of other courts of appeal upon the question under
review are conflicting. Upon the one side, the First Circuit,
Walker v. Commissioner, 88 F.2d 61, Judge Morton
dissenting, the Fourth,
Hall v. Commissioner, 89 F.2d 441,
and the Fifth,
Simpkinson v. Commissioner, 89 F.2d 397,
lend definite support to the decision of the court below. Upon the
other side, more or less definitely to the contrary, are to be
found the decisions of the Third Circuit,
Jones v.
Commissioner, 31 F.2d 755;
Cunningham v.
Commissioner, 67 F.2d 205, the Sixth,
Lunsford v.
Commissioner, 62 F.2d 740, and the Ninth,
Blair v.
Rosseter, 33 F.2d 286. No useful purpose would be served by
reviewing these decisions, and we pass to a consideration of the
case before us. The facts follow:
The amount ($10,000) received by petitioner was part of a
distribution aggregating over $600,000 made by the
Page 302 U. S. 36
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.
All of the former stockholders of the Universal Company became
stockholders of the Unopco, with the same proportionate holdings.
None of them, after the sale of the Universal stock, held any stock
in the Universal, or in the United Gasoline Corporation. Under its
new ownership, the Universal continued to carry on the same
business, retaining a large part of its assets. A few days after
the sale of the Universal Company's stock, the former stockholders,
then stockholders of the Unopco, held a meeting at which it was
proposed that they show their appreciation of the loyalty and
support of some of the employees of the Universal Company by making
them a "gift or honorarium." A resolution to that effect was
adopted at a meeting of the board of directors of Unopco on
Page 302 U. S. 37
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.
At the meeting of the former stockholders of Universal, the
former president of that company, then president of the Unopco
Corporation, said that they had reason to congratulate themselves
on their great good fortune in the Universal Company, which started
with nothing and had been built up in a phenomenal way; that they
had profited largely; that, during the years when they were
struggling and moving forward, they had had the loyal support of a
number of employees, and he thought it would be a nice and generous
thing to show their appreciation by remembering them in the form of
a gift or honorarium. All of the stockholders acquiesced, with the
result "that it was understood that we would come forward and make
these presents or gifts to the employees that were to be slated for
it." The matter had theretofore never been discussed among the old
stockholders, and this was the first time it had been brought up
for consideration. None of the recipients had ever been employed by
Unopco or by any of the former stockholders of the Universal. The
parties stipulated that neither the Universal Company nor the
United "was under any legal or other obligation to pay said
employees . . . any additional . . . compensation" other than that
which they were paid by the Universal
Page 302 U. S. 38
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.
It was further stipulated:
"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 Board of Tax Appeals concluded that, from a careful
consideration of all the evidence,
"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."
This, as we recently
Page 302 U. S. 39
have pointed out, is
"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.
The court below thought that payments such as are here involved
"may be at once
gifts' under § 22, subdivision (b)(3), and
`compensation for personal service' under subdivision (a)." Such a
view of the statute is inadmissible and confusing. The statute
definitely distinguishes between compensation, on the one hand, and
gifts, on the other hand, the former being taxable and the latter
free from taxation. The two terms are, and were meant to be,
mutually exclusive, and a bestowal of money cannot, under the
statute, be both a gift and a payment of compensation. The court
below went on to say that decisions like Old Colony Trust Co.
v. Commissioner, 279 U. S. 716,
proved that payments could be
Page 302 U. S. 40
both gifts and compensation for personal services. The most
casual reading of that case shows that it is authority for no such
doctrine. There, an employer had paid the income tax assessed upon
the salary of an employee. The employee had entered upon the
discharge of his duties for the year in question under an express
agreement to that effect. Quite evidently the payment, so agreed
upon in advance, was in consideration of services to be rendered,
and in no sense a gift. It was a part of the employee's
compensation, and the court so held. The idea that it could be a
gift in any sense was definitely rejected. We said (p.
279 U. S.
730):
"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.
From these we learn that the recipients of the bounty here in
question never were employees of the Unopco Company, or of any of
its stockholders. The Universal Company, in whose employ some of
the recipients then were, was at the time in no way connected with
the Unopco Company or any of its stockholders. Some of the
recipients had not been in the employ even of the Universal Company
for many years, and one of them
Page 302 U. S. 41
never had been an employee. Neither the Universal 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 be made 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. If the disbursements had been made by
the Universal Company, or by stockholders of that company still
interested in its success and in the maintenance of the goodwill
and loyalty of its employees, there might be ground for the
inference that they were payments of additional compensation.
Compare Noel v. Parrott, 15 F.2d 669. But such an
inference, even upon one of these suppositions, well might strain
the realities in the light of the foregoing facts. However that may
be, the disbursements here were authorized, and the burden borne,
by persons who were then strangers to the Universal Company and its
employees, under no obligation, legal or otherwise, to that company
or to any of its present or former employees. There is entirely
lacking the constraining force of any moral or legal duty as well
as the incentive of anticipated benefit of any kind beyond the
satisfaction which flows from the performance of a generous act.
The intent is shown by the appeal made at the stockholders' meeting
to the effect that it would be a nice and generous thing for these
former stockholders of the Universal to show their appreciation of
the past loyalty of that company's employees by remembering them in
the form of a "gift or honorarium," and by the common understanding
then reached that the stockholders would make the suggested
"presents or gifts" to these employees. Quite evidently, none of
these stockholders
Page 302 U. S. 42
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.
2. It is said that the word "honorarium" always denotes a
compensatory payment. Without agreeing to this
Page 302 U. S. 43
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.
3. The resolutions, which employ the word "bonus," were adopted
to carry into effect the will of the stockholders expressed at
their meeting. What occurred at that meeting, as we have already
said, indicated their clear intention to make gifts. And since
intention must govern, we must consider the word used in the light
of the intention. A similar question was before the Court of
Appeals for the District of Columbia in
Levey v.
Helvering, 62 App.D.C. 354, 68 F.2d 401. There, the corporate
resolution characterized the payments to be made to reimburse
certain officers for income taxes paid on salaries as "gifts." But
the court held this characterization did not settle the matter. It
reviewed the facts and reached the conclusion that, in the light of
them, what was intended was not a gift, but a bonus, and decided
the case in accordance with that view. In other words, the thing
that was decided upon and intended, in that case as in
Page 302 U. S. 44
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.
Judgment reversed.
* 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.
A payment received as compensation for services is taxable as
income, though made without consideration, and hence for many
purposes a gift.
Old Colony Trust Co. v. Commissioner,
279 U. S. 716,
279 U. S. 730.
To hold, as the prevailing opinion seems to do, that every payment
which in any aspect is a gift is perforce not compensation, and
hence relieved of any tax, is to work havoc with the law. A large
body of decisions, whose provenance is
Old Colony Trust Co. v.
Commissioner, would be annulled by such a test.
See
e.g., Weagant v. Bowers,
57 F.2d 679; Fisher v.
Commissioner, 59 F.2d 192;
Bass v. Hawley, 62 F.2d 721;
United States v. McCormick, 67 F.2d 867;
Botchford v.
Commissioner, 81 F.2d
Page 302 U. S.
45
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.