Old Colony Trust Co. v. Commissioner
From Wikipedia, the free encyclopedia
| Old Colony Trust Co. v. Commissioner | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
 |
|||||||||||
| Argued January 10 – 11, 1929 Reargued April 15, 1929 Decided June 3, 1929 |
|||||||||||
|
|||||||||||
| Holding | |||||||||||
| When an employer or third party pays a person's income tax on his behalf, the amount paid to the Commissioner of Internal Revenue constitutes additional income for the taxpayer. | |||||||||||
| Court membership | |||||||||||
| Chief Justice: William Howard Taft Associate Justices: Oliver Wendell Holmes, Jr., Willis Van Devanter, James Clark McReynolds, Louis Brandeis, George Sutherland, Pierce Butler, Edward Terry Sanford, Harlan Fiske Stone |
|||||||||||
| Case opinions | |||||||||||
| Majority by: Taft Joined by: Holmes, Stone, Sanford, Brandeis, Sutherland, Van Devanter, Butler Dissent by: McReynolds |
|||||||||||
| Laws applied | |||||||||||
| Revenue Act of 1926 | |||||||||||
Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929), was a case in which the Supreme Court of the United States held that where a third party pays the income tax owed by an individual, the amount of tax paid constitutes additional income to that individual.
Contents |
[edit] Facts and procedural history
The petitioners (Old Colony Trust Co.) were the executors of the will of William M. Wood, who was president of the American Woolen Company from 1918 to 1920. In 1916, the company adopted a resolution which provided that the company would pay all taxes due on the salaries of the company's officers. The Bureau of Internal Revenue (later renamed the Internal Revenue Service) assessed a deficiency for the amount of taxes that Mr. Wood had paid. The petitioners first filed suit in the District Court for a refund, and then challenged the Bureau's decision through the Board of Tax Appeals (the predecessor to the United States Tax Court).
The Board held that that the income taxes of $681,169.88 and $351,179.27 paid by the company for Mr. Wood were additional income to him for the years 1919 and 1920. The petitioners then appealed the Board's decision to the United States Court of Appeals for the First Circuit.
[edit] Decision
[edit] Majority opinion
Chief Justice Taft, writing for the majority, first held that the appeal of Wood's executors was a justiciable case or controversy for the court to decide. Furthermore, the fact that the Revenue Act of 1926 (which altered the appeals process for tax deficiencies) was passed while the case was under review by the Board of Tax Appeals did not cut off the judicial process sought by the petitioners. Taft held that the principle of res judicata resolved the jurisdictional issue, because regardless of whether the District Court action or the Board's action were decided first, the judgement which was first in time would then be properly appealable.
On the merits of the case, Taft held that payment of Mr. Wood's taxes by his employer constituted additional taxable income to him for the years in question. The fact that a person induced or permitted a third party from paying income taxes on his behalf does not excuse him from filing a tax return. Furthermore, Taft added, "The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed." 279 U.S. 716 at 729.
Thus, the company's payment of Wood's tax bill was the same as giving him extra income, regardless of the mode of payment. Nor could the payment of taxes of Wood's behalf constitute a gift in the legal sense, because it was made in consideration of his services to the company, thus making it part of his compensation package. (It must be noted, however, that this case did not change the fact that gifts are not includable in gross income for the purposes of taxation).
[edit] Dissent
Justice McReynolds wrote a brief dissent. He felt that the Court of Appeals was without jurisdiction because the Revenue Act of 1926 interfered with the executive power of the Board of Tax Appeals.
[edit] External link
- ↑ 279 U.S. 716 Full text of the opinion courtesy of Findlaw.com.
