The question for decision is whether a sum of money received by petitioner in January, 1931, was 'compensation' subject to the federal income tax, or a 'gift' exempt therefrom. The Commissioner held it to be compensation, constituting part of petitioner's gross income, and declared a deficiency. The Board of Tax Appeals sustained the determination of the Commissioner; and the court below, upon review, affirmed the order of the Board. 88 F.(2d) 646.
The decisions of other courts of appeal upon the question under review are conflicting. Upon the one side, the First Circuit (Walker v. Commissioner, 88 F.(2d) 61, Judge Morton dissenting), the Fourth (Hall v. Commissioner, 89 F. (2d) 441), and the Fifth (Simpkinson v. Commissioner, 89 F.(2d) 397) lend definite support to the decision of the court below. Upon the other side, more or less definitely to the contrary, are to be found the decisions of the Third Circuit (Jones v. Commissioner, 31 F.(2d) 755; Cunningham v. Commissioner, 67 F.(2d) 205), the Sixth (Lunsford v. Commissioner, 62 F.(2d) 740), and the Ninth (Blair v. Rosseter, 33 F.(2d) 286). No useful purpose would be served by reviewing these decisions; and we pass to a consideration of the case before us. The facts follow:
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. The Universal company was a corporation organized in 1914. In the beginning, its only asset was an application for a patent for a process for refining petroleum and manufacturing gasoline. It thereafter acquired other patents, which it licensed to various producers on a royalty basis. Beginning in 1922, its business developed increasingly until by 1930 its royalties amounted to about $9,000,000. In January, 1931, its entire stock was sold to the United Gasoline Corporation for $25,000,000. Prior to the sale, and in contemplation of it, the Unopco Corporation had been organized for the purpose of acquiring, and it did acquire, certain assets of the Universal Company of the value of over $4,000,000. Up to the time of this acquisition, the Unopco Company had never engaged in any business activities, and thereafter its only business was the investment and management of the assets thus acquired.
All of the former stockholders of the Universal Company became stockholders of the Unopco, with the same proportionate holdings. None of them, after the sale of the Universal stock, held any stock in the Universal, or in the United Gasoline Corporation. Under its new ownership, the Universal continued to carry on the same business, retaining a large part of its assets. A few days after the sale of the Universal Company's stock, the former stockholders, then stockholders of the Unopco, held a meeting at which it was proposed that they show their appreciation of the loyalty and support of some of the employees of the Universal Company by making them a 'gift or honorarium.' A resolution to that effect was adopted at a meeting of the board of directors of Unopco on January 9, 1931, and by the stockholders the following day. By these resolutions, it was resolved that the sum of $607,500 be appropriated, paid, and distributed, as a bonus, to 64 former and present employees, attorneys and experts of Universal Oil Products Company, in recognition of the valuable and loyal services of said employees, attorneys, and experts to said Universal Oil Products Company. Payments ranged in amount from $100,000 to $500. Some of the recipients had been out of the employ of the Universal company for many years; and one of them was the sister of an employee killed in an explosion about the year 1919.