279 U.S. 716 (1929)
William M. Wood was president of the American Woolen Company during the years 1918, 1919 and 1920. In 1918 he received as salary and commissions from the company $978,725, which he included in his federal income tax return for 1918. In 1919 he received as salary and commissions from the company $548,132.27, which he included in his return for 1919.1
August 3, 1916, the American Woolen Company had adopted the following resolution, which was in effect in 1919 and 1920: Voted: That this company pay any and all income taxes, State and Federal, that may hereafter become due and payable upon the salaries of all the officers of the company, including the president, William M. Wood, to the end that said persons and officers shall receive their salaries or other compensation in full without deduction on account of income taxes, State or Federal, which taxes are to be paid out of the treasury of this corporation. This resolution was amended on March 25, 1918, to provide that the method of computing said taxes shall be the difference between what the total amount of his tax would be, including his income from all sources, and the amount of his tax when computed upon his income excluding such compensation or salaries paid by this company.2345
Pursuant to these resolutions, the American Woolen Company paid to the collector of internal revenue Mr. Wood's federal income and surtaxes due to salary and commissions paid him by the company: Taxes for 1918 paid in 1919 $681,169.88 and Taxes for 1919 paid in 1920 $351,179.27. The Board of Tax Appeals approved the action of the Commissioner and found a deficiency in the federal income tax return of Mr. Wood for the year 1919 of $708,781.93, and for the year 1920 of $350,837.14.67
On June 27, 1925, before Mr. Wood's death, the Commissioner of Internal Revenue notified him by registered mail of the determination of a deficiency in income tax against him for the years 1919 and 1920 under the Revenue Act of 1918. An appeal was taken to the Board of Tax Appeals, which was filed October 27, 1925. A hearing before the Board April 11, 1927, resulted in a decision November 12, 1927. The petition for review was perfected December 23, 1927, pursuant to the Revenue Act of 1926, and the Circuit Court of Appeals for the First Circuit certified a question to the Supreme Court.89
Whether the Supreme Court has jurisdiction to answer the question of law certified by the Circuit Court of Appeals for the First Circuit in this proceeding?10
The judicial power extends to all cases arising under the Constitution, laws, and treaties of the United States when a claim takes such a form that the judicial power is capable of acting upon it, requiring the existence of present or possible adverse parties whose contentions are submitted to the court for adjudication, as in Muskrat v. United States and Osborn v. United States Bank; a petition for review of a Board of Tax Appeals decision in the Circuit Court of Appeals presents such a case or controversy because it involves the United States asserting a right to tax payment and the taxpayer resisting that payment or seeking a refund.11
Yes. The petition for review was perfected December 23, 1927, pursuant to the Revenue Act of 1926 after the Board of Tax Appeals decision of November 12, 1927, and the Circuit Court of Appeals for the First Circuit certified the question to this Court; adverse parties exist because the United States or its authorized official asserts its right to the payment by a taxpayer of a tax due from him to the Government, and the taxpayer is resisting that payment, satisfying the requirements for a case or controversy under Article III that permits the constitutional court to exercise judicial power.12
The Supreme Court has jurisdiction to answer the certified question of law.13
Whether the payment by the employer of the income taxes assessable against the employee constitutes additional taxable income to such employee?14
Under Section 213 of the Revenue Act of 1918, gross income includes gains derived from labor, and the form of payment makes no difference; the discharge by a third person of an obligation to the taxpayer is equivalent to receipt by the person taxed, so that when an employer pays an employee's income taxes pursuant to a pre-existing agreement as part of compensation for services, that payment constitutes additional taxable income to the employee.15
Yes. William M. Wood was president of the American Woolen Company during 1918, 1919, and 1920 and received salary and commissions of $548,132.27 in 1919 that he included in his return; the company adopted a resolution on August 3, 1916, amended March 25, 1918, providing that it would pay his federal income taxes so he would receive compensation in full without deduction, and pursuant to those resolutions the company paid $681,169.88 in 1919 and $351,179.27 in 2020 for his taxes; the payment was made in consideration of services rendered by Wood under the express agreement and was therefore a gain derived from his labor rather than a gift.16
The payment by the employer of the income taxes assessable against the employee constitutes additional taxable income to such employee.17