## Facts

- A corporation adopted a plan to provide for voluntary retirement at age 65 for certain principal officers, including the taxpayer.
- In recognition of prior services, the corporation purchased two single-premium annuity contracts naming the taxpayer as annuitant: one in 1939 and one in 1940.
- Each contract cost $5,000, paid by the employer to an insurance company.
- The contracts were nonforfeitable and nonassignable; by mutual understanding, the employer retained physical possession of the policies until the taxpayer reached age 65.
- The taxpayer’s salary was not reduced, and he had no option to take the premium amounts in cash.
- The employer treated the premium payments as compensation and deducted them on its corporate tax returns.
- The Internal Revenue Service assessed additional income tax, treating each premium as taxable compensation to the taxpayer in the year paid; the taxpayer paid and sued for a refund.
- The district court ruled for the taxpayer; the United States appealed.

## Issues

1. Whether employer-paid premiums for nonforfeitable annuity contracts naming an employee as annuitant are includible in the employee’s gross income in the year the premiums are paid when the contracts are nonassignable and held by the employer until retirement.

## Decision

- The court of appeals reversed the refund judgment.
- The premium amounts were taxable income to the taxpayer in 1939 and 1940.
- Nonassignability and employer possession did not prevent current taxation because the taxpayer received a present, vested economic benefit with an ascertainable value.

## Legal Principles

- Compensation “in whatever form paid” is includible in gross income when the employee receives a present economic benefit that is fixed, vested, and capable of valuation.
- An employer’s purchase of a nonforfeitable annuity contract for an employee, as compensation for services, confers a taxable benefit in the year of purchase equal to the value of the contract (commonly measured by the premium paid).
- Limits on alienation (nonassignability) and deferral of enjoyment (payments beginning at retirement) do not, by themselves, defer income recognition when the employee’s right to the benefit is nonforfeitable and irrevocably set aside for the employee.

## Conclusion

The court held that the taxpayer had taxable compensation when his employer paid premiums for nonforfeitable annuities irrevocably dedicated to his benefit, even though he could not assign the contracts and did not possess them until retirement.


United States v. Drescher, 179 F.2d 863 (2d Cir. 1950)