Botchford v. Commissioner of Internal Revenue

• Decision Date: 24 February 1936
• Docket Number: No. 7651.,7651.
• Parties: BOTCHFORD v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

81 F.2d 914 (1936)

BOTCHFORD v. COMMISSIONER OF INTERNAL REVENUE.

No. 7651.

Circuit Court of Appeals, Ninth Circuit.

February 24, 1936.

Walter E. Hettman, of San Francisco, Cal., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Norman D. Keller, and Harry Marselli, Sp. Assts. to Atty. Gen., for respondent.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

GARRECHT, Circuit Judge.

The petitioner had been vice president and general manager of the Columbia Steel Corporation (previously named Columbia Steel Company) for fourteen years prior to January, 1928. His salary had been fixed at $20,000 per year until August 1, 1927, when it was fixed at $30,000 per year. In September of 1927 he became ill, necessitating a vacation of several weeks. At the conclusion of this vacation, no noticeable improvement being apparent, he took another vacation of several weeks. Being unable to continue with his work, he tendered his resignation to the corporation in December of the same year, it being accepted on December 19, 1927. A few days later, December 23d, a special meeting of the executive committee of the board of directors of the corporation was held, at which the following resolution was adopted:

"D. H. Botchford, Remuneration:

"On motion of Director Fleishhacker, seconded by Director Drum, it was

"Resolved that the Executive Committee recommend to the Board of Directors for their approval the following settlement to be made with Mr. Botchford upon his leaving the Company.

"That Mr. Botchford's connection with the Company cease as of December 31, 1927; that an additional year's salary be credited to Mr. Botchford, there being charged against this amount the personal account of Mr. Botchford with the Company, and the remaining balance to be paid to Mr. Botchford in twelve equal monthly installments during the year 1928; and that President Grant and Director Dall be constituted a committee of two to draft appropriate resolutions covering this action, for consideration by the Board."

On January 16, 1928, the board of directors adopted the following resolution:

"Resolved: That whereas D. H. Botchford resigned as General Manager of this Corporation on December 19, 1927, after having been in the service of this Corporation and its predecessor for many years; and

"Whereas the condition of the health of said D. H. Botchford might make it difficult for him to procure immediate remunerative employment;

"Resolved: That this Corporation pay to J. D. Grant and C. G. Dall the sum of $30,000 less the amount of the personal indebtedness of said D. H. Botchford to this corporation and that said J. D. Grant and C. G. Dall shall hold the sum so paid to them for the benefit of D. H. Botchford and shall be authorized to pay over said sum to him in twelve equal installments during the calendar year 1928, or at such other times or manner as said J. D. Grant and C. G. Dall shall determine."

The "personal indebtedness" of petitioner to the corporation referred to in the resolution amounted to $14,417.84. This sum was to be credited to petitioner's account and the balance of the $30,000 paid in installments. These payments were made monthly in amounts of $1,500, the final balance being $644.90, paid in December, 1928. In its income tax return for that year the company deducted the payment of $30,000 as an expense under the caption, "Compensation allowed D. H. Botchford for services to December 31, 1927, $30,000." The payment of this sum was not shown to have been submitted to the stockholders for ratification.

The petitioner did not return the $30,000 in his return for 1928. A deficiency was found by the Commissioner in the amount of $5,563.05, upon the ground that the $30,000 was additional compensation. The petitioner contends the sum was a gift.

Petitioner's brief states the question as follows: "The point of issue, therefore, is whether the $30,000, which the Board of Directors voted to be paid the petitioner was a gift, as contended by the taxpayer, or additional compensation, as claimed by the Income Tax Department, and if it is taxable compensation, whether all of said sum should be taxable to petitioner within the community property laws of the State of California, or only one-half of such sums as were paid or credited to petitioner."

The respondent asserts that the payment was not a gift, but was additional compensation; that the board found that the petitioner had not sustained the burden of establishing an intention on the part of the corporation to make a gift, and, that decision, being a question of fact, this court is limited in its inquiry as to whether or not there is any substantial evidence to support it.

"To make a valid gift there must be an intent on the part of the donor to make the gift, a delivery of the thing given, and an acceptance on the part of the donee. 13 Cal.Jur. 36." Mercantile Trust Co. v. Reay, 96 Cal.App. 568, 572, 274 P. 401, 403. "The elements essential to constitute a valid gift are an intention to give, and the delivery, either actual or symbolical, of the thing intended to be given. Neither alone is sufficient." Sullivan v. Shea, 32 Cal. App. 369, 370, 162 P. 925, 926. "A gift is a voluntary transfer of his property by one to another, without any consideration or compensation therefor. * * * It is an essential characteristic of a gift, however, that it be a transfer without consideration. If there is a consideration for the transaction, it is not a gift." Noel v. Parrott, 15 F.(2d) 669, 671 (C.C.A.4). The general rule is that there is no presumption in favor of a gift (Denigan v. Hibernia S. & L. Soc., 127 Cal. 137, 59 P. 389) and that the burden of proving a gift is upon the donee (Sullivan v. Shea, supra, 32 Cal.App. 369, at page 371, 162 P. 925).

"The doctrine that bonus payments and gratuitous `additional compensation' for past services may constitute taxable income has been frequently recognized in decisions of the lower federal courts and of the Board of Tax Appeals." Fisher v. Commissioner, 59 F.(2d) 192, 193 (C.C.A. 2). See Noel v. Parrott, supra; Schumacher v. United States (Ct.Cl.) 55 F.(2d) 1007; Bass v. Hawley, 62 F.(2d) 721 (C. C.A.5); Levey v. Helvering, 62 App.D.C. 354, 68 F.(2d) 401.

The petitioner here brought before the board witnesses who were directors of the corporation at the time payment of the sum was voted, and who voted on the resolution. These witnesses testified that the payment was intended as a gift. In this, petitioner contends, the instant case is distinguishable from those cited...