Giannini (plaintiff) served as the Director and President of Bancitaly Corporation. In 1927, the Board of Directors approved a compensation plan for Giannini, who had worked without compensation until that year. Giannini was to receive 5% of the corporations’ net profits for each year beginning in January 1927. The corporation designated $445,704.20 as Giannini’s 5% portion of net profits from January 1 to July 22 of that year. Upon learning he would receive that amount, Giannini refused to accept his salary for the rest of the year. He instead suggested that the corporation put the money to better use. The Board of Directors subsequently adopted a resolution recognizing Giannini’s refusal to accept the remainder of his salary for 1927 and designating Giannini’s salary from July 23, 1927 to January 20, 1928 as a donation to the University of California. Giannini’s salary for that period of time amounted to $1,357,607.40. Giannini never received any portion off the remainder of his salary and did not participate in arranging the donation to the University of California. Giannini and his wife did not report the $1,357,607.40 as income. The Commissioner (defendant) determined that they should have reported the sum. The Board of Tax Appeals ruled that Giannini and his wife properly excluded the sum from their income.