Willkie v. Commissioner of Internal Revenue, 9000.

Citation127 F.2d 953
Decision Date12 May 1942
Docket NumberNo. 9000.,9000.
PartiesWILLKIE v. COMMISSIONER OF INTERNAL REVENUE.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

Samuel E. Gawne and John M. Hudson, both of Detroit, Mich. (Bulkley, Ledyard, Dickinson & Wright, of Detroit, Mich., on the brief), for petitioner.

Joseph M. Jones, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Gerald L. Wallace, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is a proceeding to review a decision of the Board of Tax Appeals. The question is whether the petitioner, Herman Frederick Willkie, received $15,000.00 during the calendar year 1927, as additional compensation for services rendered to Hiram Walker & Sons, Inc., or whether the sum so received was a gift.

The Commissioner held the sum to be compensation constituting a part of the petitioner's gross income, and declared a deficiency tax of $4,427.73. The Board of Tax Appeals sustained the Commissioner, hence this appeal. The facts are not in dispute and are substantially as follows:

Hiram Walker-Gooderham & Worts, Ltd., a Canadian Company, is the parent company; Hiram Walker & Sons, Ltd., a subsidiary operating in Canada; Hiram Walker & Sons, Inc., a subsidiary operating in the United States and Hiram Walker & Sons of Scotland, Ltd., organized early in 1937, and a subsidiary operating in Scotland.

Hiram Walker & Sons, Ltd., employed petitioner on February 15, 1927, and he later became the general superintendent and director of that company. Hiram Walker & Sons, Inc., was incorporated in 1933, at which time petitioner became its vice-president in charge of production. He built, organized and operated a distillery for that company in Peoria, Illinois, and became a director of Hiram Walker-Gooderham & Worts, Ltd., the parent company, receiving from it an annual salary of $2,000.00.

Practically all of petitioner's time was devoted to the business affairs of Hiram Walker & Sons, Inc., which company paid him a salary of $30,000.00 annually for the years 1936 and 1937. This was the same amount received as salary by the chairman of the boards of Hiram Walker-Gooderham & Worts, Ltd., and Hiram Walker & Sons, Inc.

Petitioner went to Scotland early in 1937 to assist in organizing and putting in business the Hiram Walker & Sons of Scotland, Ltd., a new company for which he had designed the plant and equipment. While there he was paid his regular salary by Hiram Walker & Sons, Inc. On May 12, 1937, he tendered his resignation to the president of Hiram Walker & Sons, Inc., on which action was deferred for about ten days until a meeting of the Board of Directors of Hiram Walker Gooderham & Worts, Ltd., could be had. At a meeting of the parent company on May 28, 1937, petitioner tendered his resignation as a member of its Board of Directors and also as an employee of Hiram Walker & Sons, Inc., giving as the reasons therefor that he felt the major part of his work was completed and that his talents were no longer being fully utilized. On being urged to reconsider he refused and his resignation was accepted. After his departure from the meeting, the following resolution was passed:

"It was moved by Mr. McCarthy, seconded by Mr. Lash, and unanimously carried that Mr. Willkie be given a cheque equal to six months' salary in appreciation of services rendered."

Petitioner did not wish to accept this sum but was urged to do so and on May 31, 1937, did accept a check of Hiram Walker & Sons, Inc., in the amount of $15,000.00, pursuant to the foregoing resolution. Petitioner also received a gift of a chime clock from the employees of Hiram Walker & Sons, Ltd., and a traveling bag from the employees of Hiram Walker & Sons, Inc.

At the time petitioner resigned, he had theretofore been paid all sums due him under his contract of employment with Hiram Walker & Sons, Inc., and as a director of the parent company, Hiram Walker-Gooderham & Worts, Ltd. After the passage of the above resolution, the chairman of the Board sought out petitioner and told him that the Board of Directors had made him a present of $15,000.00 and petitioner responded that he did not want any gift but was told by the chairman that the vote was unanimous and he thought petitioner should accept it. Shortly thereafter petitioner stated to the chairman of the Board that he probably had not been gracious about the action the Board had taken and at this time accepted the check from the chairman. At the time petitioner resigned he had been with the Hiram Walker companies for ten years.

Petitioner treated the sum received as a gift and did not report it in his income tax return for 1937. Hiram Walker & Sons, Inc., included the $15,000.00 as a deduction on its income tax return for 1937 as compensation paid petitioner.

The parent company, Hiram Walker-Gooderham & Worts, Ltd., had power during 1937 to make a gift to an employee or former employee of the parent company or its subsidiary, Hiram Walker & Sons, Inc. Petitioner is now employed by Seagram Distilleries Corporation, Ltd., a competitor of the Hiram Walker companies.

The petitioner urges that he had been amply compensated for his services to the Hiram Walker companies extending over a period of ten years and that the present sum was a gift deductible as such under Sec. 22(b) (3) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Code, § 22(b) (3).

We may substitute our judgment for that of the Board in determining whether the present payment was a gift. Bogardus v. Commissioner of Internal Revenue, 302 U.S. 34, 38, 58 S.Ct. 61, 82 L. Ed. 32.

It would be impossible, and probably useless, to discuss the innumerable decisions under the income tax law as to what constitutes a gift. Various factors, no single one of which is controlling, are to be considered in determining whether payment to one performing a service, either past, present or future, is compensation subject to tax or is a gift specifically exempt from gross income under the statute.

An employer may make a gift to an employee without rendering it taxable whether made before, during or after the termination of service. However, a payment of an additional sum by an employer to an employee carries a strong presumption that such payment is for services rendered. Bass v. Hawley, 5 Cir., 62 F.2d 721.

The intention of the parties, gathered from the facts and circumstances surrounding the transaction, and particularly that of the payor, is regarded as of primary importance in determining whether the payment is a gift or additional compensation for services. Fisher v. Commissioner of Internal Revenue, 2 Cir., 59 F.2d 192; Lunsford v. Commissioner of Internal Revenue, 6 Cir., 62 F.2d 740. It is settled law that a payment may be compensation for services although made voluntarily and without legal obligation. Old Colony Trust Company v. Commissioner of Internal Revenue, 279 U.S. 716, 730, 49 S.Ct. 499, 73 L.Ed. 918.

Since the intention of the payor or his motive may be gathered from expressed purposes or inferred from surrounding facts and circumstances, we search the evidence for the criterion of motive or intent of the payor. The payment to petitioner was measured by his salary, in which aspect it had a...

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