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Old Colony Trust Co vs. Commissioner

The document summarizes a court case regarding whether taxes paid by an employee's company constitute taxable income for the employee. The board of tax appeals ruled that taxes of over $681,000 paid by American Woolen Co. on behalf of its president William Wood for the years 1918 and 1919 were considered income for Wood. The court agreed, finding that when a third party discharges a taxpayer's obligation, it is equivalent to direct receipt of income by the taxpayer. Therefore, the payment of an employee's income taxes by an employer constitutes additional taxable income for the employee.

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98 views1 page

Old Colony Trust Co vs. Commissioner

The document summarizes a court case regarding whether taxes paid by an employee's company constitute taxable income for the employee. The board of tax appeals ruled that taxes of over $681,000 paid by American Woolen Co. on behalf of its president William Wood for the years 1918 and 1919 were considered income for Wood. The court agreed, finding that when a third party discharges a taxpayer's obligation, it is equivalent to direct receipt of income by the taxpayer. Therefore, the payment of an employee's income taxes by an employer constitutes additional taxable income for the employee.

Uploaded by

Pretzel Tsang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1. Old Colony Trust Co. v.

Commissioner
● William Wood - American Woolen Co. president for the years 1918 through 1920.
○ 1919 -1920 policy - company treasurer would pay taxes of president:
■ comptroller: Parry Wiggin
■ auditor: George R.Lawton
■ 4 Staff: Frank Carpenter, Edwin Heath, Samuel Haines, William Lasbury,
○ receive their salaries in full without deduction on account of income taxes.
■ Computation: difference between total tax, including income from all sources, & tax amount when computed upon income
excluding salaries.
● Company paid $681,169.88 for 1918 & $351,179.27 for 1919 on behalf of Wood.
● Board of Tax Appeals: amounts paid were income of Wood.
ISSUE: taxes paid by the company additional income of Wood
● Wood & other employees received a direct benefit when their tax obligation was discharged by the company. Wood received a benefit
in exchange for his services to the company. This was clearly a taxable gain.
● Discharge of a taxpayer’s obligation by a third party is equivalent to direct receipt by the taxpayer.
○ Payment by an employer of the income taxes assessable against the compensation of an employee, made in consideration of
his services, constitutes additional taxable income of the employee under the Revenue Act of 1918.
● Objection that this construction would lead to an absurdity not contemplated by Congress If employer were called upon to pay the
tax on the additional income & a further tax on that payment, & so on, will not he considered, no attempt having been made by the
Treasury to collect further taxes upon the theory that payment of additional taxes creates further income.

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