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Bogardus v. Commissioner of Internal Revenue, 302 U.S. 34, 58 S.Ct. 61, 82 L.Ed. 32, 37-2 USTC P 9534, 19 A.F.T.R. 1195, 1937-2 C.B. 258

Facts

Arthur G. Bogardus received a payment of $10,000 as part of a larger distribution from the Unopco Corporation, which was made to former employees of the Universal Oil Products Company in recognition of their past services. The payment was characterized as a gift or honorarium by the stockholders of Unopco, who had no legal obligation to make such payments. The distribution was made shortly after the sale of Universal's stock, and the payments were not intended as compensation for services rendered to Unopco.

The amount ($10,000) received by petitioner was part of a distribution aggregating over $600,000 made by the Unopco Corporation at the instance of its stockholders to petitioner and others who had theretofore rendered service as employees or in some other capacity to the Universal Oil Products Company.

Issue

The main legal issue was whether the $10,000 received by Bogardus constituted taxable compensation or a non-taxable gift.

The decisions of other courts of appeal upon the question under review are conflicting.

Rule

The court applied the principle that compensation for personal services is taxable as income, while gifts are exempt from taxation. The distinction between the two is critical, as the statute does not allow for a payment to be classified as both.

The statutory provisions involved are very plain and direct.

Analysis

The court analyzed the facts surrounding the payment, noting that the recipients were not employees of Unopco and that there was no legal obligation to pay them. The intent behind the payment was determined to be one of generosity rather than compensation for services, as evidenced by the stockholders' discussions and resolutions characterizing the payment as a gift.

In sum, then, the case comes to this: The stockholders of the Unopco, having at the time no connection with the Universal Company, but rejoicing in the fact of their own great good fortune, and mindful of the former loyal support of a number of employees of the Universal Company, and desiring to remember them ‘in the form of a gift or honorarium,’ resolved to make through the Unopco Company the distribution in question.

Conclusion

The Supreme Court reversed the lower court's judgment, concluding that the payment was a gift and not taxable as income.

Judgment reversed.

Who won?

Arthur G. Bogardus prevailed in the case because the Supreme Court found that the payment he received was a gift, not compensation, thus exempting it from income tax.

We agree with this dissenting opinion of Judge Swan, and the dissenting opinion of Judge Morton in Walker v. Commissioner, supra, as stating the correct view of the matter.

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