*116 In 1947, petitioner received from his former employer a certain sum attributable to overtime services he performed for the employer during the years 1944, 1945 and 1946. There had been a dispute as to the employer's liability to reimburse petitioner for such overtime services and payment therefor was not made until after petitioner had threatened, but before he had instituted, court proceedings. Held, that the sum in question is not back pay within the meaning of section 107 (d) (2) (A) (ii) or (iii), since the payment for the services in question was not prevented either by the intervention of a dispute as to the liability of the employer to pay such remuneration determined after the commencement of court proceedings or any event similar thereto.
Memorandum Findings of Fact and Opinion
The respondent determined a deficiency in income tax of $589.91 against the petitioner for the taxable year 1947. Of the adjustments made in arriving at this deficiency, the petitioner alleges that the respondent erred in not allowing him to treat as back pay a certain sum received by him in 1947 from his former employer in the amount of $10,648.65, which he claims is back pay attributable to services performed by him for his employer in the calendar years 1944, 1945 and 1946. The sole issue presented is whether the sum in question was back pay within the meaning of the relief provisions of section 107 (d) of the Internal Revenue Code.
Findings of Fact
Petitioner resides in New York City, New York. He filed an individual income tax return for the calendar year 1947 with the collector of internal revenue for the second district of New York.
On July 1, 1943, petitioner was retained by the Owens-Illinois Glass Company as a consulting scientist on a part-time basis. Petitioner was employed pursuant to an oral agreement between the parties, which provided*118 that the petitioner was to render approximately 50 per cent of his time to the Owens-Illinois Glass Company, and he was to be paid therefor at a yearly rate of $5,000. There was also an understanding between the parties that if in any year it was determined, after an accounting of the time spent, that the petitioner had actually devoted in excess of 50 per cent of his time to the Owens-Illinois Glass Company he was to be compensated therefor. The year to which the parties referred was the fiscal year July 1 through June 30. Petitioner continued as a regular employee of the Company from July 1, 1943, until December 31, 1946.
During each of the periods July 1, 1944, to June 30, 1945, and July 1, 1945 to June 30, 1946, petitioner rendered services to his employer, the Owens-Illinois Glass Company, which consumed more than half of his time; however, at no time during any of these periods did he receive any remuneration for these overtime services.
The first formal request by the petitioner that he be reimbursed for the overtime services was made in January 1947. Prior to that year the problem was discussed informally off and on over a period of about two years. In the early part of*119 1947 the officials of Owens-Illinois Glass Company requested the petitioner to produce an itemized day-to-day statement with respect to the time consumed in performing services for this Company. Such a statement, dated March 6, 1947, was presented by the petitioner to the Owens-Illinois Glass Company. This schedule, or "Summary of Days Worked," indicated that the petitioner devoted to the service of his employer, the Owens-Illinois Glass Company, 214 1/2 days during the period July 20, 1944, through June 30, 1945, and 244 days during the period July 1, 1945, through June 30, 1946. On the basis of this schedule the petitioner determined that there was due and owing him for overtime services the amount of $10,648.65. The Company made no move to make payment, so in June 1947 petitioner authorized an attorney to institute suit against the Owens-Illinois Glass Company. At about the same time petitioner notified the Company that unless he received payment he was going to institute suit. Before the petitioner's attorney commenced any court action to collect the back pay, the Owens-Illinois Glass Company in August 1947 paid the amount demanded by the petitioner.
Opinion
HILL, Judge: Both*120 parties agree that in August 1947 petitioner's former employer paid him the amount of $10,648.65. The sole issue presented concerns the question whether the whole or any part of this sum was back pay within the meaning of section 107 (d) (2) of the Internal Revenue Code.
The applicable sections of the Code and Regulations read as follows:
"SEC. 107. COMPENSATION FOR SERVICES RENDERED FOR A PERIOD OF THIRTY-SIX MONTHS OR MORE AND BACK PAY.
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"(d) Back Pay. -
"(1) In general. - If the amount of the back pay received or accrued by an individual during the taxable year exceeds 15 per centum of the gross income of the individual for such year, the part of the tax attributable to the inclusion of such back pay in gross income for the taxable year shall not be greater than the aggregate of the increases in the taxes which would have resulted from the inclusion of the respective portions of such back pay in gross income for the taxable years to which such portions are respectively attributable, as determined under regulations prscribed by the Commissioner with the approval of the Secretary.
"(2) Definition of back pay. - For the purposes of this subsection*121 'back pay' means (A) remuneration, including wages, salaries, retirement pay, and other similar compensation, which is received or accrued during the taxable year by the employee for service performed prior to the taxable year for his employer and which would have been paid prior to the taxable year except for the intervention of one of the following events: (i) bankruptcy or receivership of the employer; (ii) dispute as to the liability of the employer to pay such remuneration, which is determined after the commencement of court proceedings; (iii) if the employer is the United States, a State, a Territory, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any of the foregoing, lack of funds appropriated to pay such remuneration; or (iv) any other event determined to be similar in nature under regulations prescribed by the Commissioner with the approval of the Secretary; * * *. Amounts not includible in gross income under this chapter shall not constitute 'back pay'."
Regulations 111.
"Sec. 29.107-3. Back Pay Attributable to Prior Taxable Years. * * *
"An event will be considered similar in nature to those events specified*122 in section 107 (d) (2) (A) (i), (ii), and (iii) only if the circumstances are unusual, if they are of the type specified therein, if they operate to defer payment of the remuneration for the services performed, and if payment, except for such circumstances, would have been made prior to the taxable year in which received or accrued. For the purposes of this section the term "back pay" does not include remuneration which is deemed to be constructively received in the taxable year or years in which the services were performed, remuneration paid in the current year in accordance with the usual practice or custom of the employer even though received in respect of services performed in a prior year or years, additional compensation for past services where there was no prior agreement or legal obligation to pay such additional compensation, or any amount which is not includible in gross income under Chapter 1."
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Special attention is called to the requirement of the above quoted section of the Code and Regulations that any one of certain events contained therein must have intervened to prevent payment of the remuneration in question prior to the taxable year. It is petitioner's*123 position that he has met this requirement. He maintains that his action in hiring an attorney, whom he authorized to commence suit, and in threatening court action unless his demand for back pay was satisfied constituted an event similar to a "dispute as to the liability of the employer to pay such remuneration, which is determined after the commencement of court proceedings." Clauses (ii) and (iv) of section 107 (d) (2) (A), supra.
We believe that the petitioner's position in this respect is untenable. In Thomas Thompson and Agnes D. Thompson, 18 T.C. -, (July 11, 1952), the taxpayer-husband had a dispute with his former employer with respect to certain alleged past due commissions. The taxpayer hired an attorney and together they met with officials of the former employer. The taxpayer demanded payment of about $125,000 in alleged past due commissions and he threatened court action if he was not paid. After a protracted discussion the employer paid the taxpayer $60,000 in a compromise settlement. The taxpayer maintained, as does the petitioner here, that circumstances of his case fitted within the meaning of clauses (ii) and (iv) of section 107 (d) (2) (A). Holding in favor of*124 the respondent, we stated that
"* * * Thomas [taxpayer] and his employer were able to settle whatever dispute they had through a mere discussion between themselves without the commencement of any court proceeding or without resort to arbitration and without the participation of any agency or tribunal of any kind. * * * The words 'which is determined after the commencement of court proceedings' would be superfluous and ineffective if Congress meant that every settlement of a dispute would be sufficient to bring the payment within section 107 (d). Congress must have intended to exclude the settlement of a dispute by the parties through a mere discussion between themselves without the commencement of any court proceeding or without the intervention of any event which might be considered similar in nature to a court proceeding, even though in the discussion between the parties threats of suit might be mentioned."
In the case before us, as in the Thompson case, no court proceedings or anything similar thereto were ever instituted by the petitioner, and the petitioner received payment while the dispute was still in the conference stage. We hold that the petitioner has not established*125 the existence of any event similar to a dispute as to the liability of the employer to pay such remuneration, which is determined after the commencement of court proceedings; therefore, the payment in question does not meet the definition of back pay as set out in section 107 (d) (2) of the Code. There remains no need for us to consider, or purpose in any discussion of, petitioner's argument with respect to other elements of the statutory definition of back pay.
Decision will be entered for the respondent.