Law School Case Brief
Old Colony Tr. Co. v. Commissioner - 279 U.S. 716, 49 S. Ct. 499 (1929)
The Revenue Act of 1926 gave a direct judicial review of the United States Board of Tax Appeal's decisions. The Act also enlarged the original jurisdiction of the Board to consider deficiencies beyond those shown in the Commissioner of Internal Revenue's notice, if the Commissioner made such a claim at or before the hearing, § 274(e) of the Act, and also to determine that the taxpayer not only did not owe the tax but had overpaid. § 284(e). The chief change made by the Act was the provision for direct judicial review of the Board's decisions by the filing by the Commissioner or the taxpayer of a petition for review in a circuit court of appeals or the Court of Appeals of the District of Columbia under rules adopted by such courts.
The payment of a tax by the employers in consideration of the services rendered by the employee for his labor constitutes income to the employee.
Old Colony Trust Company (“Old Colony”) paid the federal income taxes owed on salaries for some of its executives. The Commissioner of Internal Revenue assessed a deficiency against the employees, arguing that petitioner's payment of their taxes constituted additional salaries, which was taxable. Old Colony challenged the decision of the U.S. Circuit Court of Appeals for the First Circuit, which held that payment by the employer of the income taxes assessable against the employee constituted additional taxable income to such employee.
Does the payment by the employer of the income taxes assessable against the employee constitute additional taxable income to such employee?
The Supreme Court of the United States first determined that the circuit court of appeals and itself had jurisdiction over appeals from the tax appeals board, finding that there was a live case or controversy. The Court also determined that, by Old Colony paying its executives' income taxes, that in itself was a form of taxable compensation, whereupon additional tax was due. The Court upheld the Commissioner’s deficiency determination and ordered that additional taxes must be paid.
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