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Commissioner v. LoBue

351 U.S. 243 (1956)

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Commissioner v. LoBue

United States Supreme Court
351 U.S. 243 (1956)

Facts

LoBue (plaintiff) was a manager at the Michigan Chemical Corporation. In 1944, the corporation initiated a stock option plan, granting LoBue the option to purchase 340 shares for $5 each. At that time, LoBue secured the options with promissory notes to be paid upon exercising the options. The options were not transferable, and LoBue had to remain an employee in order to exercise them. Between 1946 and 1947, LoBue exercised all of the stock options available to him. In all, LoBue paid the corporation $1,700 for company stock with a market value of $9,930 at the time of exercise. The corporation deducted the difference ($8,230) as an expense on its tax returns for 1946 and 1947, but LoBue did not include it as income on his tax returns. The commissioner of internal revenue (defendant) assessed a deficiency against LoBue on the grounds that the gain represented compensation for personal services that should be taxed. LoBue petitioned the tax court for review. The tax court found that the granting of stock options was meant to confer a proprietary ownership interest in the corporation and did not constitute additional compensation. The court of appeals affirmed, and the commissioner appealed.

Rule of Law

Issue

Holding and Reasoning (Black, J.)

Concurrence/Dissent (Harlan, J.)

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