Stock Received in Lieu of Salary by Stockholder-Employees Whose Proportionate Interest Remains Unchanged Is Taxable Income–Commissioner v. Fender Sales, Inc.
Transactions involving forgiveness by stockholder-employees of corporate indebtedness are shrouded in legal uncertainty. The conflicting positions espoused by the Commissioner, the Tax Court, and the circuit court in the principal case focus attention on a few salient problems. The Commissioner, in arguing that the receipt of stock by the individual taxpayers constituted taxable income, considered the individuals solely as employees, believing it immaterial that they were also stockholders. Thus, he reasoned that when they, as employees, received stock in payment of their accrued salaries, they realized income. In contrast, the Tax Court viewed the individual taxpayers as stockholders who had received a stock dividend. Noting that their proportionate ownership interest in the corporation had not been affected, the Tax Court relied upon Eisner v. Macomber, in which the Supreme Court held that receipt of a stock dividend was not a taxable event, to conclude that no income was realized.