*3574 Payment to president of corporation held to be a gift.
*254 Petitioner contests a deficiency of $11,358.98 determined by the respondent for the year 1920, alleging error in the addition to income of $50,000 paid to petitioner by a corporation of which he was president.
FINDINGS OF FACT.
Petitioner is a resident of California and during the years 1910 to 1922 was president of Sperry Flour Co. At the annual meeting of the stockholders of Sperry Flour Co., held August 16, 1920, a resolution, with prefatory statement, was adopted, as follows:
Director Wm. H. Crocker addressed the stockholders and gave a very interesting resume of the affairs of the Company since its reorganization in 1910. He said the marked success of the Company since that date was due to the able and successful direction of its affairs by President J. H. Rosseter, and suggested that as evidence of the appreciation of the stockholders for the very efficient and valuable services rendered to the company, that President Rosseter be voted a gift of Fifty thousand (50,000) *3575 dollars.
Thereupon on motion of D. B. Moody seconded by Charlotte E. Sperry the stockholders by an unanimous vote instructed the Board of Directors to authorize the payment of Fifty thousand (50,000) dollars as a gift to John H. Rosseter in recognition of his able and successful direction of the affairs of the Company during the past ten years.
Upon motion duly made and seconded Vice President McNear appointed W. H. Orrick and Austin Sperry a committee to draw up a letter of congratulation to accompany the gift.
*255 Pursuant to the authorization, the board of directors on the same date passed the following resolution:
WHEREAS, at the annual meeting of the stockholders of Sperry Flour Company held on this 16th day of August, 1920, it was unanimously resolved that a gift in the sum of Fifty thousand (50,000) dollars be made by said Sperry Flour Company to J. H. Rosseter, the president of said Company, in recognition of his able and successful direction of its affairs during the past ten years.
RESOLVED: That this Board of Directors approve the action so taken by the stockholders of said company at said meeting, and hereby directs the payment of the sum aforesaid*3576 to the said J. H. Rosseter in accordance with the said resolution.
RESOLVED FURTHER that this Board of Directors tenders its congratulations to the said J. H. Rosseter upon this the tenth anniversary of his election to the presidency of said Company, and its appreciation of his able and successful direction of its affairs during the occupancy of said office.
The sum of $50,000 was paid to petitioner on August 17, 1920, and on the books of the corporation the item was charged to the surplus account. In the tax return of the corporation the sum was not claimed as an expense deduction but appeared in its reconciliation of the change in surplus as "bonus to J. H. Rosseter." Petitioner received from the Sperry Flour Co. during each of the years he served as president the sum of $6,000, which was the full compensation provided for by his contract of employment. He devoted approximately one-fourth of his time to the interests of this company.
During part of the time between 1910 and 1922 and while petitioner was president of Sperry Flour Co. he was also director and Pacific Coast manager for W. R. Grace Co. and vice president and general manager of the Pacific Mail Steamship Co. *3577 During part of 1918 and most of 1919 petitioner was director of operations of the United States Shipping Board and a trustee of the Emergency Fleet Corporation. He was absent from California for long periods of time and during such absence devoted only slight attention to the affairs of Sperry Flour Co. During petitioner's service as president the operations of the company were profitable and its profits were greatly increased.
OPINION.
VAN FOSSAN: Whether or not a payment is a gift under the law depends upon the intention of the parties and the facts and circumstances surrounding the transaction. Counsel for respondent, addressing himself to the question of intention, observed at the hearing that "the corporate resolution is the best evidence and speaks for what the intention was." In the absence of facts or circumstances which discredit the intention expressed by the corporate resolution, it is certainly entitled to great weight. Applying such a test here *256 the intention to make a gift is clear and conclusive, nor do we find anything in the record to negative the intention expressed by both the stockholders and the directors of the corporation. On the contrary*3578 there is much in corroboration.
The corporation charged the payment to surplus rather than as an expense and in its tax return did not claim the payment as a deduction from income. The payment was authorized by the action of both the stockholders and the directors. Petitioner devoted only part of his time to the corporation and had completed ten years of successful incumbency in the office of president.
The facts in this case are even more favorable to the petitioner than those in , in which case we held the payment to be a gift. The facts also clearly distinguish the case from , relied on by respondent.
The respondent was in error in adding the payment to income.
Reviewed by the Board.
Judgment will be entered for the petitioner.
MURDOCK, dissenting: The so-called "gift" received by Rosseter was, in the final analysis, compensation received for services. Whether it was for past, present, or future services, or whether elements of each formed part of the consideration, it was income within the meaning of that term as used in the Revenue Act.
STERNHAGEN and SIEFKIN agree with this dissent.