Commissioner v. Smith
United States Supreme Court
324 U.S. 177 (1945)
- Written by Abby Roughton, JD
Facts
Western Cooperage Company (Western) gave employee John Smith (plaintiff) stock options as part of Smith’s compensation. The options had no value at the time they were given to Smith, but the options gave Smith the right to purchase from Western certain shares of another corporation’s stock at a price not less than the stock’s value at the time Smith received the options (i.e., the option price). In subsequent years, Smith exercised his options and made two large purchases of the other corporation’s stock at times when the stock’s market value was higher than the option price. The Commissioner of Internal Revenue (the commissioner) (defendant) determined that the difference between the stock’s market value and the option price was compensation for Smith’s personal services to Western, which was taxable as income in the years Smith received the stock. The commissioner thus determined a deficiency in Smith’s income taxes for those years. Smith challenged the deficiency notice in tax court. The court upheld the commissioner’s determination, but a federal appeals court reversed, holding that Smith’s exercise of the options was a purchase of a capital investment that could result in taxable income to Smith only when he eventually sold the stock. The United States Supreme Court granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Stone, C.J.)
Dissent (Roberts, J.)
What to do next…
Here's why 834,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 46,500 briefs, keyed to 994 casebooks. Top-notch customer support.
- The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
- Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
- Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.
