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Commissioner of Internal Revenue v. Giannini - 129 F.2d 638 (9th Cir. 1942)


Income is not taxable until "realized." One who is entitled to receive at a future date, interest or compensation for services and who makes a gift of it by an anticipatory assignment, realizes taxable income quite as much as if he had collected the income and paid it over to the object of his bounty. 


The Gianninis, a taxpayer and his wife, were residents of California. Giannini was a Director and President of Bancitaly Corporation from 1919 until its dissolution after the tax year in question. From 1919 to 1925 he performed the services of these offices without compensation, and on January 22, 1925, the Board of Directors authorized a committee of three to devise a plan to compensate him, he in the meantime to have the privilege of drawing upon Bancitaly for his current expenditures. Bancitaly elected to compensate the taxpayer at a rate of five percent of Bancitaly's net profits each year, with a guaranteed minimum of $100,000 per year. When Giannini learned in 1927 that he would receive $445,704 as compensation through July 1927, he informed the board of directors that he would not accept any further compensation for 1927. Bancitaly then passed a resolution to contribute $1,500,000, which was the estimated amount of five percent of Bancitaly's net profits for 1927, to a university. Giannini personally covered the deficiency in Bancitaly's contribution to the university. The Commissioner assessed a deficiency in Giannini's federal income taxes for 1928, as he had failed to report any part of Bancitaly's payment to the university. The United States Board of Tax Appeals held that there was no deficiency in respondent Giannini's federal income tax for the year 1928. The Commissioner appealed.


Did the Board of Tax Appeals err in holding that there was no deficiency in respondent taxpayer's federal income tax for the year 1928?




The United States Court of Appeals for the Ninth Circuit affirmed the Board's judgment, holding that the Board's findings were supported by the evidence, as the taxpayer did not receive the money and he did not direct its disposition.

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