Law School Case Brief
Int'l Freighting Corp. v. Commissioner - 135 F.2d 310 (2d Cir. 1943)
While it is true, that Int. Rev. Code § 111(b) provides that the amount realized is the sum of any money received plus the fair market value of the property (other than money) received, there is literally no property or money received where there is a disposition of stock for services, yet it has been held that money's worth is received and that such a receipt comes within § 111(b).
In 1936, petitioner freight corporation delivered shares to its employees as an additional reasonable compensation for past services actually rendered. The shares were disposed of for a valid consideration equal at least to the market value of the shares when delivered. The tax court determined that delivery of the shares resulted in a taxable gain to petitioner.
Did the delivery of the petitioner’s shares to its employees result in a taxable gain to the petitioner?
The Court held that the delivery of the shares was not a gift and that the value of shares could not be deducted as an expense under Revenue Act 1936, § 23(a), 26 U.S.C.A. Int. Rev. Code § 23(a), because that delivery was an additional reasonable compensation for past services actually rendered. The Court opined that, in this case, the delivery of the shares constituted a disposition for a valid consideration; and thus, it resulted in a closed transaction with a consequent realized gain.
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