Old Colony Trust Co. v.
Commissioner
279 U.S. 716 (1929)
Income Taxes
When you earn income, you have to pay a
percentage as income taxes to the federal
government. This pays for federal
government spending.
Old Colony Trust Co.
In the Old Colony Trust case,
the Supreme Court held that when an
employer pays the income taxes for
an employee, that payment constitutes
taxable income (meaning taxes have
to be computed and paid on the tax
itself).
What does this mean?
Suppose the employee’s salary is
$100,000.00 per year. This is taxable
income.
If the tax rate is 25%, the employee owes
$25,000.00 in taxes. If the employer pays
these taxes, then the employee owes 25%
of the additional $25,000.00 to the IRS.
Is This Absurd?
Lawyers for the company tried to argue
that these payments would spiral out of
control and become absurd. Were they
Right?