Commissioner v. LoBue - 351 U.S. 243, 76 S. Ct. 800 (1956)

Rule:

Section 22(a) of the Internal Revenue Code of 1939 taxes income derived from compensation "in whatever form paid " and is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected.

Facts:

Respondent's company offered stock options to its employees based on their performance and continued employment. Respondent exercised the options offered and the Internal Revenue Service imposed a deficiency on his federal income tax return for the year in which he did so because he failed to report the gain that resulted from his purchase of the stock as income. Respondent appealed and the Tax Court held that the options were granted to provide respondent with a proprietary interest in the company and not as compensation and they were not taxable. The appellate court affirmed on the basis that the lower court's decision was based on a factual issue peculiar to it and it could not say the decision was clearly erroneous. Petitioner, Commissioner of Internal Revenue, sought review of the appellate court’s judgment. 

Issue:

Did the stock options represent compensation to respondent, and hence, taxable? 

Answer:

Yes.

Conclusion:

On certiorari, the Supreme Court held that the interpretation given to § 22(a) of the Internal Revenue Code of 1939 was too narrow and that the options were compensation, includible as taxable income. The matter was reversed and remanded to the appellate court with instructions to remand to the lower court for further proceedings as to the measure of gain, which had not been addressed.