Schumacher v. United States, M-26.

Decision Date08 February 1932
Docket NumberNo. M-26.,M-26.
Citation55 F.2d 1007
PartiesSCHUMACHER v. UNITED STATES.
CourtU.S. Claims Court

COPYRIGHT MATERIAL OMITTED

Joseph J. Klein, of Cleveland, Ohio (Myron A. Finke, of New York City, on the brief), for plaintiff.

R. C. Williamson, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (Bradley B. Gilman, of Washington, D. C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.

WILLIAMS, Judge.

The plaintiff in this case seeks to recover $25,000, with interest thereon, an alleged overpayment of his income taxes for the calendar year 1925.

The sole issue in the case is whether an amount of $100,000 received by the plaintiff from the stockholder's committee of the El Paso & Southwestern Company in January, 1925, was income derived from compensation for personal services within the meaning of section 213 (a) of the Revenue Act of 1924 (26 USCA § 954 (a), or was a gift within the meaning of section 213 (b) (3) of said act (26 USCA § 954 (b) (3) and note).

The rule is that whether a payment is taxable compensation or a gift exempt from tax depends upon the intention of the parties and the facts and circumstances surrounding the transaction. The facts have been stipulated and briefly stated are:

Prior to October 31, 1924, the plaintiff was president of the El Paso & Southwestern Railroad Company, the stock of which company was owned by the El Paso & Southwestern Company, a holding corporation.

On November 1, 1924, the El Paso & Southwestern Company transferred the capital stock of the El Paso & Southwestern Railroad Company to the Southern Pacific Company and received in exchange therefor certain securities of that company. Upon the transfer of the El Paso & Southwestern Railroad Company to the Southern Pacific Company the plaintiff's employment by the former company was terminated and he performed no further service for that company thereafter. The plaintiff was paid in full the salary due him as an employee of the El Paso & Southwestern Railroad Company up to the conclusion of his employment.

On November 10, 1924, the secretary of the El Paso & Southwestern Company addressed a letter to the stockholders of the holding company explaining in detail the plan of reorganization whereby the stock of the El Paso & Southwestern Railroad Company was transferred to the Southern Pacific Company and asking on behalf of the directors of the El Paso & Southwestern Company full approval, ratification, and confirmation of the plan and all the acts of the directors in carrying out the same. This letter contained the following statement: "The directors of the El Paso & Southwestern Company request that the stockholders of the company authorize them, in recognition of the long and faithful services of the officers and employees of the railroad, to pay the officers and employees, to be designated by the board of directors, additional compensation to be decided by the board of directors, and that they be authorized to set aside for such compensation a sum not to exceed $1,000,000.00."

The secretary inclosed in this communication a letter which the stockholders were requested to sign and return to him. In this letter appears the following statement:

"As a stockholder of the El Paso & Southwestern Company, I hereby ratify, approve, and confirm the plan of reorganization and the actions of the board of directors and the officers, as set forth in said plan of reorganization, and the documents accompanying your letter.

"I understand that there are certain unsettled expenses, obligations to the Southern Pacific Company, bonuses to the employees, agreed upon by the board of directors, estimated at about $1,000,000.00, and other debts, expenses, and liabilities incidental to the plan of reorganization and otherwise."

The stockholders approved the plan of reorganization and confirmed and ratified the action of the board of directors as set out in the letter of the secretary of the company. They also appointed five of their number as a committee "to pay the expenses, to compensate employees, to adjust and settle the accounts, to discharge and provide for the debts and liabilities of the company and generally to do every act and thing necessary or proper in pursuance of the provisions of the plan of reorganization * * *."

This stockholders' committee, on December 23, 1924, took the following action:

"Upon motion duly seconded and carried, the secretary was authorized to release the checks in payment of certain bonuses to amount of $893,690.00 as per memo on file.

"Resolved: That the officers be authorized to secure a loan of $1,000,000.00 from the Hanover National Bank."

Out of the $893,690 paid as bonuses to certain former officers and employees of the El Paso & Southwestern Railroad Company, the plaintiff on January 2, 1925, received the $100,000...

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11 cases
  • Roberts v. Commissioner of Internal Revenue
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • June 27, 1949
    ...characteristics of a gift, — absence of consideration — be present. Blair v. Rosseter, 9 Cir., 1929, 33 F.2d 286; Schumacher v. United States, 1932, 55 F.2d 1007, 74 Ct.Cl. 720; Weagant v. Bowers, 2 Cir., 1932, 57 F.2d 679; and see, Bass v. Hawley, 5 Cir., 1933, 62 F.2d 721, 732; Simpkinson......
  • Frank v. United States
    • United States
    • U.S. District Court — Southern District of New York
    • November 10, 1966
    ...characteristics of a gift,—absence of consideration— be present. Blair v. Rosseter, 9 Cir., 1929, 33 F.2d 286; Schumacher v. United States, 1932, 55 F.2d 1007, 74 Ct.Cl. 720; Weagant v. Bowers, 2 Cir., 1932, 57 F.2d 679; and see, Bass v. Hawley, 5 Cir., 1933, 62 F.2d 721, 732; Simpkinson v.......
  • Kaiser v. United States
    • United States
    • U.S. District Court — Eastern District of Wisconsin
    • February 19, 1958
    ...Noel v. Parrott, 4 Cir., 1926, 15 F.2d 669, 671; certiorari denied 273 U.S. 754, 47 S.Ct. 457, 71 L.Ed. 875; Schumacher v. United States, 1932, 55 F.2d 1007, 1011, 74 Ct.Cl. 720. 11 Bass v. Hawley, 5 Cir., 1933, 62 F.2d 721, 723. 12 Bogardus v. Commissioner, supra n. 9, 302, U.S. 41, 58 S.C......
  • Silverman v. Comm'r of Internal Revenue
    • United States
    • United States Tax Court
    • August 28, 1957
    ...made a gift, as they contend. Whether a payment is a gift depends, first, on the intention of the alleged donor. Schumacher v. United States, 55 F.2d 1007, and cases cited. Other elements which may be considered are the donor's competency to make a gift, the absence of consideration as that......
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