INTERNATIONAL FREIGHTING CORPORATION, INC. V. COMMISSIONER
135 F.2d 310 (1943)
NATURE OF THE CASE: This was a dispute over the status of the gains from stock options.
International (P) challenged a decision of the Tax Court determining that P's delivery of
shares to its employees as additional reasonable compensation was a taxable gain.
FACTS: From 1933-1935 DuPont owned all of IFC (P) stock. In 1936 DuPont owned 2/3rds of
the stock of P and General Motors owned 1/3rd. During the years 1933-36, P adopted a company
bonus plan to motivate employees; it was the same plan that DuPont had for its own
employees. Under the Class B part of the plan, awards were made to those employees who had
contributed greatly to the success of P and were to be made from a portion of P's profits,
which the finance committee would set aside in a Class B fund. Bonus recommendations were to
be made by the president or heads of departments and the executive committee of the board
would then have final say on who got a Class B bonus. Bonuses were in the form of common
stock in DuPont or cash to be invested in such stock. During 1936, P awarded 150 shares of
bonus stock whose cost to P on the date of delivery was $16,153.36 but whose market value
was $24,858.75. Each of the employees who got stock paid taxes and they used market value at
time of delivery. P took a deduction of $24,858,75. The IRS wanted the taxes on the
$8,705.39 difference between acquisition and market value at time of delivery. The Tax court
decided for the IRS. This appeal resulted.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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