Old Colony Trust Co. V. Commissioner - Majority Opinion

Majority Opinion

Justiciability. Chief Justice Taft, writing for the majority, first held that the appeal of Wood's executors was a justiciable case or controversy for the court to decide. Furthermore, the fact that the Revenue Act of 1926 (which altered the appeals process for tax deficiencies) was passed while the case was under review by the Board of Tax Appeals did not cut off the judicial process sought by the petitioners. Taft held that the principle of res judicata resolved the jurisdictional issue, because regardless of whether the District Court action or the Board's action were decided first, the judgment which was first in time would then be properly appealable.

Merits. Taft held that payment of Mr. Wood's taxes by his employer constituted additional taxable income to him for the years in question. The fact that a person induced or permitted a third party from paying income taxes on his behalf does not excuse him from filing a tax return. Furthermore, Taft added, "The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed." 279 U.S. 716 at 729.

Thus, the company's payment of Wood's tax bill was the same as giving him extra income, regardless of the mode of payment. Nor could the payment of taxes of Wood's behalf constitute a gift in the legal sense, because it was made in consideration of his services to the company, thus making it part of his compensation package. (This case did not change the general rule that gifts are not includable in gross income for the purposes of U.S. Federal income taxation, while some gifts but not all gifts from an employer to an employee are taxable to the employee.).