## Facts

- William M. Wood served as president of the American Woolen Company during 1918–1920.
- The company adopted corporate resolutions providing that it would pay state and federal income taxes due on officers’ salaries, including Wood’s.
- Pursuant to the resolutions, the company paid Wood’s federal income and surtaxes attributable to his salary and commissions for the years at issue.
- The Commissioner treated the employer’s tax payments as additional gross income to Wood and determined income tax deficiencies for 1919 and 1920.
- The Board of Tax Appeals sustained the Commissioner and determined deficiencies of $708,781.93 (1919) and $350,837.14 (1920).
- Wood’s executors sought review in the court of appeals, which certified legal questions to the Supreme Court.

## Issues

1. Whether appellate review of a Board of Tax Appeals decision under the Revenue Act of 1926 presents an Article III “case or controversy,” and whether the reviewing court has power to award execution of its judgment.
2. Whether an employer’s payment of an employee’s federal income tax liability, made as part of compensation for services, constitutes taxable income to the employee under the Revenue Act of 1918.

## Decision

- The Court held that review of a Board of Tax Appeals decision presents a “case or controversy” within Article III.
- The Court held that the statutory review scheme authorizes reviewing courts to award execution of final judgments; in any event, lack of execution power is not necessary to qualify as a case or controversy when the judgment establishes enforceable duties for an executive department.
- The Court held that an employer’s payment of an employee’s income taxes, made in consideration of services, is additional taxable income to the employee.
- The Court rejected an “infinite regress” objection (tax-on-tax) as a basis for narrowing the statute where no such recursive collection was being pursued.
- The Court resolved the certified questions in favor of the Commissioner, effectively affirming the tax deficiencies upheld by the Board of Tax Appeals.

## Legal Principles

- A proceeding to review an administrative tax determination can constitute an Article III “case or controversy” when the court is asked to exercise judicial power.
- The discharge of a taxpayer’s personal legal obligation by a third party, when provided as compensation, is economically equivalent to the taxpayer’s receipt of money and is includible in gross income.
- “Income” under federal revenue statutes is construed broadly to include non-cash economic benefits and third-party payments made on the taxpayer’s behalf in exchange for services.
- Potential parallel remedies do not defeat jurisdiction; if inconsistent judgments could arise, ordinary preclusion principles apply such that the first final judgment is conclusive.

## Conclusion

The Court upheld the validity of judicial review of tax board determinations as an Article III controversy and held that when an employer pays an employee’s federal income taxes as compensation for services, the payment is a taxable accession to the employee’s wealth and must be included in gross income.


Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929)