## Facts

- A.P. Giannini served as president of Bancitaly Corporation and, after years without compensation, was put on a plan paying 5% of annual net profits (minimum $100,000), effective January 1, 1927.
- For January 1 to July 22, 1927, Giannini’s 5% share ($445,704.20) was credited to his account and paid; that amount was not disputed.
- After learning of the amount earned, Giannini told directors he would not accept any additional compensation for the rest of 1927; his refusal was absolute and unconditional.
- Giannini suggested only that the corporation use the remaining amount for some worthwhile purpose, without requiring any particular use.
- For approximately July 23, 1927 to January 20, 1928, the additional amount that would have been payable under the formula was about $1.35 million.
- Bancitaly’s board, acting on its own, chose to donate that amount to the University of California to establish an agricultural economics foundation bearing Giannini’s name.
- Giannini never received any part of the disputed amount and did not participate in arranging, documenting, or administering the donation.
- Giannini and his wife did not include the donated amount in gross income and did not claim it as a charitable contribution.
- The Commissioner determined a deficiency for tax year 1928, treating the donated amount as taxable income to Giannini under constructive receipt/assignment-of-income theories.
- The Board of Tax Appeals found no deficiency; the Commissioner sought appellate review.

## Issues

1. Whether compensation that a taxpayer had a contractual right to receive, but unequivocally refused before obtaining control, is taxable to the taxpayer when the employer later pays the amount to a third party.
2. Whether the employer’s subsequent charitable donation in the taxpayer’s honor constitutes the taxpayer’s constructive receipt or an assignment of income due to alleged direction of disposition.
3. Whether, assuming any taxable event occurred, it was properly attributed to tax year 1928 rather than 1927.

## Decision

- The Ninth Circuit affirmed the Board of Tax Appeals.
- The court held the disputed amount was not taxable income to Giannini (or his wife) for 1928.
- Giannini did not constructively or beneficially receive the funds and did not direct their disposition; the donation was the corporation’s independent act.
- The court noted that even under the Commissioner’s theory, the relevant event would have occurred in 1927 when Giannini renounced the compensation, not in 1928 when the university received the donation.
- The court found no evidence that the arrangement was a sham or a tax-evasion device.

## Legal Principles

- Income is generally realized when a taxpayer receives it or has dominion and control such that the taxpayer can command payment or direct disposition.
- A taxpayer is not taxed on compensation that the taxpayer absolutely and unconditionally refuses before it is credited, paid, or otherwise placed under the taxpayer’s control.
- Assignment-of-income concepts apply when the taxpayer controls earned income and channels it to another; they do not apply when the taxpayer renounces the right to payment and leaves the payor free to keep or dispose of the funds.
- A payor’s later payment to a third party, made after the taxpayer’s unconditional renunciation and without the taxpayer’s direction, is treated as the payor’s act, not the taxpayer’s receipt followed by a transfer.
- Tax timing matters: if a taxable event is premised on renunciation or control, the year of that event governs rather than the year the payor later disburses funds to a third party.

## Conclusion

The court ruled that Giannini’s unconditional отказ of additional compensation prevented constructive receipt and defeated the assignment-of-income theory; because he neither controlled the funds nor directed their use, the corporation’s later charitable gift in his honor was not taxable income to him for 1928.


Commissioner v. Giannini, 129 F.2d 638 (9th Cir. 1942)