*77 Decision will be entered under Rule 50.
Two months after death of petitioner's husband in 1944, the company he had long served in an executive capacity departed from its usual policy and paid to petitioner the approximate amount of bonus her husband would have received if he had survived. Held, on the facts, payment was not compensation for services but was a a gift to the widow, excludible from gross income under section 22 (b) (3) of the Code.
*9 The Commissioner determined a deficiency in income tax for the year 1944 in the amount of $ 41,579.61. The only question to be decided is whether $ 51,580, a payment made to the petitioner*78 by a corporation for which the petitioner's deceased husband worked, which was paid to the petitioner after her husband's death was a gift to the wife, not taxable to her, or represented compensation for services of the deceased husband rendered to the corporation.
The petitioner concedes that one adjustment made by the respondent is correct. The respondent originally, in the deficiency notice included $ 66,955 in petitioner's income for 1944, representing all of the payments made by the Tribune Company to the petitioner after her husband's death. Of that amount, $ 15,375 represented the continuation of the deceased husband's salary, and the respondent now concedes that he erred in including the above amount in petitioner's income because it had not been earned at the date of death. Accordingly, the balance, $ 51,580, only, is in issue. Effect will be given under Rule 50 to the respective concessions of each party.
*10 FINDINGS OF FACT.
The facts which have been stipulated are found as facts. The stipulation is incorporated herein by reference.
Petitioner is a resident of Chicago, Illinois. She filed her income tax return with the collector for the first district of Illinois. *79 The petitioner reports her income on a cash basis.
The petitioner is the widow of W. E. Macfarlane, who died on October 9, 1944, at the age of 62.
Tribune Company is a corporation which publishes newspapers, and it is located in Chicago, Illinois. Colonel Robert R. McCormick is the president of the Tribune Company. WGN, Inc., a wholly owned subsidiary of Tribune Company, operates in Chicago a radio station, WGN. Macfarlane was employed by the Tribune Company during most of his working life, and from about 1928 until the time of his death, he was an executive of Tribune, business manager, and assistant secretary. For many years prior to his death, Macfarlane was, also, a vice president of WGN.
There was never any employment contract, written or otherwise, between Tribune and Macfarlane, and employment was terminable at the will of either party.
In addition to their basic salaries, Tribune employees and executives are eligible annually to receive a bonus. The rank and file employees are paid a bonus, economic conditions permitting, according to a blanket formula based on amount of salary and years of service. This is called the X or percentage bonus. The determination of an *80 annual bonus for executives, known as the Z bonus, is left to the president, who has full authority with respect to whom and in what amounts bonuses shall be paid. Such authority has customarily been delegated to the president by resolution of the board of directors. In 1944, such a resolution was adopted on November 20 and provided as follows:
RESOLVED, that Colonel McCormick be and he is hereby authorized to pay year-end bonuses for 1944 and salaries for 1945 to such officers and employees of the Company and in such amounts as he may determine and as are permitted by law.
With respect to the X bonus, if one employee receives it for a given year, all are paid. In the case of the executive or Z bonus, the situation is otherwise. Some might receive a bonus while others get none. Moreover, if paid at all, the amount might be greater, less, or the same as in the previous year, depending entirely upon Colonel McCormick's determination at the end of each year. Employees of the Tribune, including executives, were informed at the time of being hired, and were advised periodically thereafter, that the company was not obligated to pay bonuses, that bonuses were not an assured part of *81 the *11 employees' income, and that they might or might not be paid in a given year.
In 1944, as in other years, upon the contingency that bonuses would be paid, and as a matter of conservative accounting, current entries were made monthly upon the company's books setting up an estimated bonus reserve account in the form of a credit and a counterbalancing estimated bonus expense account as a debit. Adjustments were made at the year-end to conform to amounts actually awarded and paid. In 1944, the estimated reserve and expense accounts which had been set up were $ 39,907.06 short of the total bonuses as finally paid.
For the years 1938 to 1944, the salary and bonus paid to Macfarlane by Tribune and WGN, Inc., were as follows:
| Salary | Bonus | Salary | ||
| Year | Tribune | Tribune | WGN, | Total |
| Co. | Co. | Inc. | ||
| 1938 | $ 50,000.00 | $ 42,500.00 | $ 17,500.00 | $ 110,000.00 |
| 1939 | 50,000.00 | 61,419.79 | 17,500.00 | 128,919.79 |
| 1940 | 50,000.00 | 44,406.49 | 17,500.00 | 111,906.49 |
| 1941 | 50,000.00 | 57,821.00 | 17,500.00 | 125,321.00 |
| 1942 | 50,000.00 | 56,362.00 | 17,500.00 | 123,862.00 |
| 1943 | 50,000.00 | 53,692.50 | 17,500.00 | 121,192.50 |
| 1944 | 38,611.11 | None | 13,513.89 | 1 52,125.00 |
*82 It was the practice of the Tribune to take an employee, officer, or executive off the payroll the day he died and not to pay a bonus unless he was on the payroll the day when the bonus was paid. Over a period of approximately 20 years prior to Macfarlane's death, three executives had died while working for the Tribune. Each was taken off the payroll on the date of death and no subsequent bonus or payment of any kind was ever paid to his widow.
When Macfarlane died, at age 62, after having served Tribune during most of his working life, Colonel McCormick, Tribune's president, instructed its chief financial officer, J. Howard Wood, to investigate the financial circumstances of decedent's widow, the petitioner. After reporting that petitioner was not financially secure, Wood was instructed to consult tax counsel to determine if Tribune could pay petitioner a gratuity. Wood was thereafter advised by counsel that, pursuant to I. T. 3329, 1939-2 C. B. 153, 2 the Company could pay Mrs. Macfarlane an amount approximately equal to her late husband's annual salary for one or even two years. On the strength of this advice McCormick ordered that, in addition to*83 certain payments hereinafter *12 referred to, petitioner be paid the equivalent of the bonus received by Macfarlane for 1943.
Pursuant to the authorization of Colonel McCormick the following payments were made to petitioner by Tribune and WGN, Inc.:
| Date of check | Check | Amount |
| No. | ||
| Oct. 20, 1944 | 1133 | $ 1,312.50 |
| Oct. 31, 1944 | 1147 | 2,812.50 |
| Nov. 15, 1944 | 1179 | 2,812.50 |
| Nov. 30, 1944 | 1210 | 2,812.50 |
| Dec. 15, 1944 | 1242 | 2,812.50 |
| Dec. 30, 1944 | 1276 | 2,812.50 |
| Dec. 18, 1944 | 706 | 51,580.00 |
| Total | $ 66,955.00 |
The first six of the payments above listed were made to petitioner as the widow of the decedent and were*84 in amounts which were equivalent to the sums which he would have received as salaries from Tribune and WGN, Inc., had he lived to December 31, 1944. Tribune, in its consolidated income tax return for 1944, claimed these amounts, including the $ 51,580 above listed, as deductions for compensation paid. No payments were made by Tribune Company or WGN, Inc., to the Estate of W. E. Macfarlane at any time, except for salary of $ 1,500 for the period from October 1 to October 9, 1944, as previously stated.
Petitioner was the sole heir and devisee under the last will and testament of her deceased husband. The amounts received by her as set forth above were not reported as income by the Estate of W. E. Macfarlane, nor were such sums or any right to receive them included in the gross estate for purposes of Federal estate tax liability.
Petitioner did not include any of the payments made to her by Tribune in her individual taxable income on her income tax return for 1944.
Petitioner was not employed at any time by Tribune Company or by WGN, Inc., and she did not render any services to either company at any time.
Neither petitioner nor her husband at any time owned any stock of Tribune Company*85 or WGN, Inc. Petitioner's husband during his lifetime had purchased, and at the time of his death was the owner of, two units of beneficial interest in the Tribune-News Employees Trust, which interest was the only interest, direct or indirect, of either petitioner or her husband in the stock of Tribune Company, and such interest was not greater than the equivalent of an interest in two shares out of a total of 2,000 shares of Tribune Company stock outstanding.
The $ 51,580 was received by petitioner as a gift from Tribune and not as compensation for services rendered.
*13 OPINION.
The question in this proceeding is whether the sum of $ 51,580 paid to petitioner by Tribune in December 1944 was compensation earned by Macfarlane in his lifetime and hence taxable pursuant to section 126(a) of the Internal Revenue Code, as contended by respondent, or a gift, as contended by petitioner, excludible from gross income under section 22(b) (3).
The question is one of fact. We have found as fact, after considering all of the evidence, that the payment was a gift. In reaching this result we follow Louise K. Aprill, 13 T. C. 707. Respondent has argued that*86 the Aprill case is not controlling here because Tribune was legally obligated to pay Macfarlane a bonus for 1944 over and above his salary, and that the payment to petitioner was in discharge of that obligation. In view of Macfarlane's death two months before bonuses were paid for 1944, and the long standing policy of the Company to pay bonuses, if at all, only to those employees on the payroll on the date bonuses were paid, and the absence of any employment agreement, we have found as a fact that no such alleged legal obligation existed.
In finding that the payment was a gift we have looked to the intent of the payor, which is the controlling factor. Louise K. Aprill, supra;Bogardus v. Commissioner, 302 U.S. 34">302 U.S. 34; Old Colony Trust Co. v. Commissioner, 279 U.S. 716">279 U.S. 716, 730; Brayton v. Welch, 39 F. Supp. 537">39 F. Supp. 537. The evidence shows that Tribune, wishing to give financial assistance to petitioner because of her circumstances was advised by counsel that pursuant to I. T. 3329 the payment of $ 51,580 would constitute a gift to petitioner and yet be deductible*87 from the Company's gross income as a business expense. Cf. Louise K. Aprill, supra.Moreover it is particularly significant that the payment was made to Macfarlane's widow rather than his estate. See Estate of Edward Bausch, 14 T.C. 1433">14 T. C. 1433, 1439, affd. 186 F. 2d 313.
Decision will be entered under Rule 50.
Footnotes
1. The amount of $ 1,500, out of $ 52,125, is not in dispute here, having been paid directly to Macfarlane's estate and tax paid thereon.↩
2. I. T. 3329↩, C. B. 1939-2, p. 153, sets forth the following ruling: Payments made in 1937 and 1938 by the M Company to the widow of an officer-stockholder who died in January, 1937, though not required to be made by any contractual obligation, are deductible by the corporation as business expenses. Such amounts are gifts to the widow, and, therefore, are not taxable income to her.