Old Colony Trust Co. v. Commissioner

Brief Fact Summary. Wood was president of the American Woolen Company. The company adopted a resolution wherein they would pay the tax obligations of Wood and other officers.

Synopsis of Rule of Law. The discharge of a taxpayer’s obligation by a third party is equivalent to direct receipt by the taxpayer.

Facts. William Wood was president of the American Woolen Company for the years 1918 through 1920. The company instated a policy for 1919 and 1920 wherein the company would pay the taxes of the president and other company officers. The company paid $681,169.88 for 1918 and $351,179.27 for 1919 on behalf of Wood. The Board of Tax Appeals held that these amounts paid were income of Wood.

Issue. Were the taxes paid by the company additional income of Wood?

Held. Chief Justice Taft issued the opinion for the Supreme Court of the United States affirming the lower court and holding that the taxes paid were income to Wood.

Concurrence. A separate opinion of Justice McReynolds is omitted from the text.

Discussion. The Supreme Court notes that Wood and 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.