*186 Decision will be entered for the respondent.
Held, that the payments made to petitioner in 1955 and 1956 by S. B. Penick & Company were not made to her as gifts and were not excludible from her gross income under section 102, I.R.C. 1954. The payments resulted in the receipt of taxable income by petitioner under section 61(a), I.R.C. 1954.
*999 The Commissioner has determined deficiencies against petitioner as follows:
| Year | Deficiency |
| 1955 | $ 22,465.47 |
| 1956 | 15,041.65 |
The deficiency for 1955 is due to an adjustment made by the Commissioner by adding to the net income shown on petitioner's return "(a) Voluntary Payments to Widow $ 30,000.00." The adjustment is explained in the deficiency notice as follows:
(a) It has been determined that you failed to report taxable income of $ 30,000.00 received from S. B. Penick & Company. This amount represents payments made to you in consideration of services rendered by your deceased husband as an officer of the corporation and is includible in your income in accordance with the provisions of Section 61(a) of the 1954 Internal Revenue Code.
The deficiency for 1956 is due to the same type of adjustment, except the amount was $ 22,500, and is explained in the deficiency notice in the same manner as the adjustment made for 1955.
*1000 Petitioner assigns error as to both adjustments on the ground that both payments were made by the corporation as gifts to petitioner and were not paid for any services which petitioner had rendered to the corporation*188 or for any services which her deceased husband had rendered to the corporation prior to his death in 1953.
FINDINGS OF FACT.
A stipulation of facts, together with exhibits attached thereto, was filed at the hearing and is incorporated herein by this reference. Part of the facts which have been stipulated will be stated in these findings.
Margaret H. D. Penick, hereinafter referred to as petitioner, is an individual residing at Montclair, New Jersey. In each of the taxable years she filed an individual income tax return with the district director of internal revenue at Newark, New Jersey.
Petitioner was never an employee, officer, or director of S. B. Penick & Company, hereinafter referred to as the corporation.
S. B. Penick, Sr., petitioner's husband, served as chairman of the board of the corporation from 1952 until the date of his death; prior to that time he had served as president of the corporation. During that period his compensation was as follows:
| Total | |
| Year | compensation |
| 1942 | $ 55,840.88 |
| 1943 | 60,007.50 |
| 1944 | 60,007.50 |
| 1945 | 60.007.50 |
| 1946 | 68,750.00 |
| 1947 | 75,000.00 |
| 1948 1 | $ 78,750.00 |
| 1949 | 54,167.00 |
| 1950 | 49,999.70 |
| 1951 | 57,999.69 |
| 1952 | 58,000.06 |
| 1953 | 24,166.59 |
Penick had never expressed any dissatisfaction with the above-stated compensation and at the time of his death in May 1953 he was not contending that he had been underpaid for the services which he had rendered to the corporation as its managing head.
At a meeting of the board of directors held on June 26, 1953, the following occurred: Referring to the death of the corporation's former chairman, S. B. Penick, Sr., the chairman said that in many instances where the directors considered it appropriate and advisable, certain companies had continued the salary of a deceased officer for different periods to the widow of the deceased officer. He said this was, of course, a matter entirely for decision by the directors and that because of the circumstances in this particular case, the directors might wish to take some special action as a tribute to the founder of the firm and his unceasing work in its behalf. The chairman's suggestion met with unanimous approval by the directors and it was:
*1001 Resolved, that the President be and hereby is authorized to cause the corporation to pay to Mrs. S. B. Penick, Sr., in further recognition of Mr. Penick's*190 invaluable association with the company from the time of its formation until his death, an amount which he deems appropriate on a regular monthly basis, not to exceed the regular salary paid to Mr. Penick, Sr., as Chairman of the Board, during the fiscal year ended May 31, 1953.
At a meeting of the board of directors of the corporation held on June 25, 1954, the following occurred: The chairman recalled to the directors that at the June 1953 meeting, as a mark of further respect to the memory of Penick, Sr., the board of directors had adopted a resolution authorizing the president to cause the corporation to pay to petitioner an appropriate monthly income not to exceed, however, the amount paid to Penick, Sr., as regular salary during the year ended May 31, 1953. He informed the directors that certain payments had been made during the past fiscal year in the aggregate well below those authorized and he said that the board might wish to adopt a similar resolution at this meeting. Several members of the board indicated a desire to continue payments to the extent which the president of the corporation considered appropriate and within the limits of the resolution previously adopted. *191 Accordingly, it was unanimously,
Resolved, that the President be and is hereby authorized to cause the corporation to pay to Mrs. S. B. Penick, Sr., as a mark of further recognition of Mr. Penick's invaluable services to the corporation from the time of its formation by him until his death, an amount which the President deems appropriate, to be paid on a regular monthly basis in the aggregate, however, not to exceed the amount paid to Mr. S. B. Penick, Sr., as regular salary for acting as Chairman of the Board for the fiscal year ended May 31, 1953.
At a meeting of the board of directors of the corporation held on June 24, 1955, the following occurred: The chairman reminded the directors that during the past 2 years authorization had been granted to the president to pay petitioner a sum not exceeding the amount of the regular salary of the former chairman of the board during his last full year in office. He said that under that authorization only about one-half of the authorized amount had been paid to her but if the directors agreed he would like to have the authority to continue payments up to the maximum allowed during the current year. The directors were unanimous in approving*192 such a program and it was unanimously,
Resolved, that the President be and is hereby authorized to cause the corporation to pay to Mrs. S. B. Penick, Sr., as a mark of further recognition of Mr. Penick's invaluable services to the corporation from the time of its formation by him until his death, an amount which the President deems appropriate, to be paid on a regular monthly basis in the aggregate, however, not to exceed the amount paid to Mr. S. B. Penick, Sr., as regular salary for acting as Chairman of the Board for the fiscal year ended May 31, 1953.
*1002 At a meeting of the board of directors of the corporation held on June 29, 1956, the following occurred: The chairman referred to the fact that the directors very kindly had in previous years authorized certain payments to petitioner in commemoration of the outstanding service rendered to the corporation by its founder, Penick, Sr. He said that total actual payments made in accordance with the previous authorizations amounted to $ 77,250 and that, in his opinion, a further payment to petitioner could be authorized at this time if the directors were so minded. Thereupon the following resolution was unanimously adopted:
*193 Whereas, upon the death of Sydnor Barksdale Penick, Sr., this Board, by appropriate resolution forwarded to Mrs. Penick, expressed sincere sympathy and regret over the loss of our beloved friend and steward; and
Whereas, as an expression of the sympathy felt for the grief suffered by his widow over the death of Mr. Penick, by resolutions adopted by this Board on June 26, 1953, June 25, 1954, and June 24, 1955, the President was authorized to cause the Corporation to pay to Mrs. Penick on a regular monthly basis an annual amount not to exceed the regular salary paid to Mr. Penick as Chairman of the Board; and
Whereas, the Board has been advised that the amount paid to Mrs. Penick pursuant to the aforementioned resolutions has to this date totaled $ 77,250.00;
Now, Therefore, be it Resolved that as a further expression of sympathy for the loss suffered by Mrs. Penick, and our appreciation and gratitude for the services rendered by Mr. Penick, the President be and is hereby authorized to cause the Corporation to pay to Mrs. Penick an amount which the President deems appropriate, to be paid on a regular monthly basis for the fiscal year ending on May 31, 1957, not to exceed in the aggregate, *194 however, an amount, which when taken together with the aggregate amount previously paid over to Mrs. Penick, pursuant to resolutions of the Board of Directors dated June 26, 1953, June 25, 1954 and June 24, 1955, is equal to the total amount paid to Mr. Penick for salary as Chairman of the Board during the two-year period immediately preceding his death.
During the calendar years 1955 and 1956 the corporation paid to petitioner, pursuant to the foregoing resolutions, the sums of $ 30,000 and $ 22,500, respectively. The corporation was under no moral or legal obligation to make such payments.
At the time of the adoption of the foregoing resolutions petitioner suffered from a severe case of arthritis and from Parkinson's disease. Petitioner was confined to a wheelchair and was an invalid unable to walk more than a few steps. These facts were well known to the entire board of directors at the time of the adoption of the resolutions.
Prior to the payments to petitioner the corporation had never made any payments, as a gift or otherwise, to the widow or family of a deceased officer or director.
The amounts authorized by the aforesaid resolutions were accrued on the books of the corporation*195 as amounts due petitioner and were charged as an offset to an account designated "Other Income Charges." *1003 Federal income taxes were withheld on the amounts paid to petitioner in the years 1953 through 1955. The corporation deducted the entire amounts paid to petitioner as ordinary and necessary business expenses on its Federal income tax returns.
The Commissioner disallowed the deductions claimed by the corporation for all amounts paid petitioner during the calendar years 1955 and 1956 on the ground that they were neither ordinary and necessary business expenses under section 162 of the 1954 Code nor deductible under any other provision thereof. The corporation paid the deficiencies resulting from the disallowances and subsequently filed claims for refund with respect thereto.
During the calendar years 1950 to 1956, inclusive, the corporation paid dividends on its common stock as follows:
| Year | Dividends | Total |
| per share | dividends | |
| 1950 | 1.45 | $ 203,727.50 |
| 1951 | 2.15 | 203,840.00 |
| 1952 | 1.975 | 165,327.63 |
| 1953 | 1.975 | 209,381.63 |
| 1954 | 1.975 | 209,221.63 |
| 1955 | 2.50 | 267,110.00 |
| 1956 | 3.00 | 322,750.00 |
The following schedule shows the earnings and earned surplus*196 of the corporation for the fiscal years ended May 31, 1953, to May 31, 1957, inclusive:
| Net income | Earned surplus | |
| For the fiscal year ended May 31 -- | for the year | at end of the |
| year | ||
| 1953 | $ 121,791.76 | $ 3,569,601.24 |
| 1954 | 619,878.28 | 3,935,257.89 |
| 1955 | 572,054.80 | 4,231,904.06 |
| 1956 | 580,073.30 | 4,444,852.36 |
| 1957 | 333,583.16 | 4,443,325.52 |
Petitioner reported on her income tax return for 1955 medical expenses as follows:
| Medical | |
| Dorothy M. Lutz, R.N | $ 3,978.00 |
| Rosa G. Hunter, Nurse | 572.00 |
| Eleanor L. Nalesnyk, R.N | 3,956.75 |
| Ethel Ziegler, R.N | 799.24 |
| Hospital Bed $ 120.00 & Sides $ 25 | 145.00 |
| Wheel Chair & Arm Rests | 124.21 |
| Associated Hospital Service | 33.00 |
| Dr. Fradkin, D.D.S. Montclair, N.J | 8.00 |
| Dr. Allen, M.D. Montclair, N.J | 489.00 |
| Bio-Chemical Lab | 32.00 |
| Mountainside Hospital, Montclair | 564.10 |
| Total | 10,701.30 |
*1004 She took as a deduction therefor only $ 2,500 because of the limitations in the statute.
On her 1956 return petitioner reported medical expenses as follows:
| Medical | |
| Dr. Chester Allen | $ 150.00 |
| Dr. Frank Paul | 53.00 |
| Dr. M. Wainwright | 80.00 |
| Dorothy Lutz, nurse | 4,390.00 |
| E. Nalesnyk, nurse | 3,150.00 |
| H. Brister, nurse | 4,781.00 |
| Miscellaneous nurses | 740.50 |
| Surgical supply | 88.85 |
| Hospital Ins | 33.00 |
| Total | 13,466.35 |
*197 She took as a deduction therefor only $ 2,500 because of the limitations in the statute.
On her income tax return for 1955 petitioner reported adjusted gross income of $ 40,627.75. On her income tax return for 1956 petitioner reported adjusted gross income of $ 37,296.87.
The payments made to petitioner by the corporation of $ 30,000 in 1955 and of $ 22,500 in 1956 were not gifts made by the corporation to petitioner.
OPINION.
We have but one issue in this proceeding and that is whether the payments made to petitioner in 1955 and 1956 by S. B. Penick & Company are taxable to her as determined by the Commissioner in his deficiency notice. There is no issue as to the amounts or that they were actually paid to petitioner. It is petitioner's contention that the payments so made were gifts by the corporation to her and are, therefore, not taxable to her by reason of section 102 of the 1954 Code 1*198 printed in part in the margin. The Commissioner in his deficiency notice has determined that the payments were taxable income to petitioner under section 61(a) of the 1954 Code 2 printed in part in the margin.
Similar payments to those here involved were made in 1953 and 1954. These payments are not in issue here. The Commissioner has *1005 not undertaken to tax them to petitioner. It is not contended by petitioner that the Commissioner is estopped from taxing the payments made in 1955 and 1956 by reason of the fact that he did not tax the same type of payments made to petitioner in 1953 and 1954. Clearly he is not estopped; no facts in the record establish estoppel.
The question is, were such payments made in 1955 and 1956 gifts, as petitioner contends, or taxable income to petitioner as the Commissioner has determined?
Both parties cite and discuss Commissioner v. Duberstein, 363 U.S. 278">363 U.S. 278. In that case we think*199 the Supreme Court made reasonably clear two fundamental principles: (1) The characterization of a corporate payment as a gift or as compensation is a question of fact for the trial court to determine, and (2) the thing that controls this factual determination is the "dominant reason that explains his [payor's] action in making the transfer" -- if affection, charity, or like impulses are the dominant motive, then the payment is a gift; if not, it is a taxable payment.
It goes without saying in the instant case that the determination of the Commissioner is presumed to be correct and the burden of proof is on petitioner to show that it is not correct. Has she met that burden of proof? We do not think that she has met it. We have endeavored in our Findings of Fact to give a full and fair statement of the facts, both those which were stipulated and those which were established by oral testimony. There would be no point in restating those facts. It is sufficient to say, we think, that the case is controlled, in our opinion, by Roy I. Martin, 36 T.C. 556">36 T.C. 556, on appeal (C.A. 3). Of course, the facts in the instant case are somewhat different from those which*200 were present in the Martin case. In the instant case the petitioner was an invalid from arthritis and Parkinson's disease and it was necessary that she use a wheelchair. That was not true in the Martin case. But in the instant case the facts show that petitioner had a comfortable income and was not in need of financial assistance. It seems certain to us that the payments which were made to her in 1955 and 1956 were not made to her by the corporation because of petitioner's urgent need. While her medical bills resulting from her invalidism were considerable, she had ample income with which to pay them out of her own funds. There is no evidence to the contrary.
We must conclude from all the evidence in the record that the case here is not distinguishable from Roy I. Martin, supra. It goes without saying that we should endeavor to treat all taxpayers alike. Therefore, following that case, we hold for the respondent.
Decision will be entered for the respondent.
Footnotes
1. Bonus of $ 12,500 included.↩
1. SEC. 102 GIFTS AND INHERITANCES.
(a) General Rule. -- Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.↩
2. SEC. 61. GROSS INCOME DEFINED.
(a) General Definition. -- Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, and similar items;
* * * *
(14) Income in respect of a decedent; * * *↩