Lunsford v. Commissioner of Internal Revenue

• Decision Date: 10 January 1933
• Docket Number: No. 6070.,6070.
• Citation: 62 F.2d 740
• Parties: LUNSFORD v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

62 F.2d 740 (1933)

LUNSFORD v. COMMISSIONER OF INTERNAL REVENUE.

No. 6070.

Circuit Court of Appeals, Sixth Circuit.

January 10, 1933.

J. R. Schindel, of Cincinnati, Ohio (Morison R. Waite and Herbert Shaffer, both of Cincinnati, Ohio, on the brief), for petitioner.

Carlton Fox, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and C. H. Curl, all of Washington, D. C., on the brief), for respondent.

Before MOORMAN, HICKENLOOPER, and SIMONS, Circuit Judges.

SIMONS, Circuit Judge.

The petitioner seeks to set aside a decision of the United States Board of Tax Appeals redetermining a deficiency in income taxes for the year 1923 assessed by the respondent upon the income of petitioner's decedent, Abner Lunsford. The controversy relates to a payment of $50,000 made to Lunsford in the taxable year by the Pond Creek Coal Company. The petitioner maintains that the payment was a gift. The Commissioner treated it as taxable income.

The facts, sufficiently stated for our purpose, are as follows: On December 30, 1922, the Fordson Coal Company, a corporation controlled by Ford Motor Company, purchased the properties of the Pond Creek Coal Company for $8,500,000. The purchaser was represented in the transaction by Lunsford, manager of its Kentucky properties, with an annual salary of $16,500. The seller was represented by R. C. McVeigh, its vice president. Lunsford was never an employee of the seller. After the sale was completed and the consideration therefor paid, the board of directors of the Pond Creek Coal Company, on February 15, 1923, voted to pay Lunsford $50,000 as a gift, when and if such payment had the approval of the Ford Motor Company. In pursuance of the action of his board of directors, McVeigh wrote Lunsford on February 20th, informing him of the action taken, and giving as the reason therefor that the business relations between the parties had been so exceedingly pleasant that in token of friendship and esteem his company would like to remember Lunsford with some memento in connection with the transaction, and would appreciate prompt advice as to whether or not this met with the approval of the Ford Motor Company. The original letter was returned to McVeigh by Lunsford with a notation thereon that it was "O. K." signed by Edsel B. Ford. On February 28th a check for $50,000 was mailed to Lunsford. In the accompanying letter he was advised that the sender was handling the matter upon its records as a gift; that it would not report it as an expense in its tax return for 1923, and advised him not to include it as income in his personal return.

The payment to Lunsford was not claimed by the Pond Creek Coal Company as a deduction in its 1923 return, though disclosed to the collector by an information return. In his individual tax return for 1923, Lunsford also disclosed receipt of $50,000, but did not return it as income, and paid no tax thereon. The Commissioner in auditing the return of the Pond Creek Coal Company refused to recognize the payment to Lunsford as a gift, but treated it as compensation or salary, and as a deductible expense of the Pond Creek Coal Company. The overassessment resulting was covered by a check to the Pond Creek Coal Company, which it accepted without, however, filing an amended return.

The Board specifically found that Lunsford, neither prior to the sale of the properties nor thereafter, demanded, requested, or suggested that anything be paid him by the Pond Creek Coal Company on account of his connection with the sale of its property; that neither the Pond Creek Coal Company nor any one connected with it agreed to pay, or promised that anything would be paid, Lunsford by reason of his part in negotiating or aiding in effecting the sale, but concluded that the evidence did not overcome the presumption that the Commissioner's determination was correct, and entered the order here sought to be reviewed.

The applicable statute, section 213, of the Revenue Act of 1921 (42 Stat. 237), defines gross income to include income derived from compensation for personal service, but not to include the value of property acquired by gift. It has been said that whether a payment in a given case is taxable compensation, or a gift exempt from tax, depends upon the intention of the parties, particularly that of the employer, to be determined from the facts and circumstances surrounding the transaction. Fisher v. Commissioner, 59 F.(2d) 192 (C. C. A. 2). The mere fact that payment for services by an employer is entirely voluntary does not necessarily mean that such payment is not compensation within the statute. Old Colony Trust Company v. Commissioner, 279 U. S. 716, 49 S. Ct. 499, 73 L. Ed. 918; Noel v. Parrott, 15 F.(2d) 669 (C. C. A. 4). Even where compensation has been voluntarily paid to an employee for services rendered in prior years, it has been held that an employer may...