TAXATION - FEDERAL INCOME TAX - PAYMENT TO EMPLOYEES AS COMPENSATION OR GIFT

The Universal Oil Products Company had been "extraordinarily successful," and its interests were very large and valuable. The stockholders transferred their stock to another corporation and the cash assets to the Unopco Corporation, an organization formed for the express purpose of managing this fund, whose stockholders were the same as of the former Universal Oil Products Company. At a stockholders' meeting, a resolution was adopted which in effect provided that a sum of money be allocated for payment to those employees who had loyally supported the former company. At the time this resolution was adopted the president of the new corporation declared: "It . . . would be a nice and generous thing for us to show our appreciation and to remember them in the form of a gift of honorarium." The beneficiaries thereof were attorneys, engineers, experts, etc. In the present action to determine whether the payments made pursuant to this resolution were taxable under the federal income tax as "compensation for personal services" or exempt as "gifts," the Supreme Court, in reversing the circuit court and the decision of the Board of Tax Appeals, held, the payments were exempt from taxation, since they were made without legal or moral obligation and because no benefit in the future would accrue to the donor by reason thereof.

Four justices dissented. Bogardus v. Commissioner of Internal Revenue, 302 U. S. 34, 58 S. Ct. 61 (1937).