DocketNumber: Docket No. 1708-62
Citation Numbers: 41 T.C. 352, 1963 U.S. Tax Ct. LEXIS 6
Judges: Drennen
Filed Date: 12/9/1963
Status: Precedential
Modified Date: 1/13/2023
*352 Respondent determined a deficiency in petitioners' income tax for the year 1960 in the amount of $ 423.72.
The only issue for decision is whether petitioners are entitled to exclude from gross income as sick pay under
*353 FINDINGS OF FACT
Petitioners are residents of Houston, Tex. They filed a joint Federal income tax return for the year 1960 with the district director of internal revenue, Austin, Tex. Hereafter John C. Lang will be referred to as petitioner.
From July 1957 to April 1961, petitioner was sales manager of the Houston branch office of Aaron Machinery Co., Inc. (hereafter referred to as Aaron).
On September 9, 1960, petitioner *7 suffered a heart attack. During his illness he received from Aaron an amount equal to his normal salary.
Following petitioner's heart attack he was hospitalized for 3 or 4 weeks and visited his office for the first time in the latter part of November 1960. He was permitted to visit the office for about 2 hours, but his physician advised that he do no work at that time. His position required him to travel extensively but it was not until January 1961 that his physician permitted him to travel again. In early December 1960, petitioner's assistant became ill and petitioner began spending more time in his office.
Decisions regarding the operations and management of Aaron were generally made by Aaron's management in its principal office in New York City where bookkeeping work, including the preparation of pay checks for Aaron's employees, was performed. The manager of the Houston branch office was required to give the New York office information as to employees who were absent from work and the reasons for their absences.
The management of Aaron in New York City determined whether an employee who was absent from work should receive pay during his absence. Generally, employees who were *8 paid by the hour received no pay while they were absent. The company had a "general practice" of continuing the pay of a salaried employee during the period he was absent from work for a good reason, including sickness, although this was not a published policy of the company, there was no established procedure pertaining thereto, and the company was in no way obligated to do so. Whether such salaries would be continued during an employee's absence and the period during which the payments were continued were deemed matters solely within the discretion of the management of Aaron in New York City, who took into consideration the value of a particular employee's services to the company and the length of time he had been employed. Employees of Aaron were not specifically notified of any practice of Aaron of paying salaries to an employee absent on account of illness.
Petitioner's assistant in the Houston branch office assumed petitioner's duties when petitioner became ill in 1960. When the assistant *354 became ill in early December 1960 and was unable to continue working, the management of Aaron determined not to continue his salary during his absence from work, but petitioner prevailed *9 upon them to do so.
On his tax return for 1960, petitioner claimed an exclusion from gross income in the amount of $ 1,600, representing pay received from Aaron in 1960 for the period that he was absent from work on account of illness. Respondent determined that petitioner is not entitled to exclude any amount received from Aaron in 1960 from gross income.
None of the payments received by petitioner from Aaron in 1960 was paid to him pursuant to a "wage continuation plan."
OPINION
Petitioners contend that $ 1,600 1 of the payments received by petitioner from Aaron during the latter part of 1960 represents sick pay, excludable from gross income under the provisions of
Therefore, while
It follows that in order to be excluded from gross income under the above provisions, payments constituting wages or payments in lieu of wages must be received by an employee through accident or health insurance, or under an accident or health
The rule was stated in
For wage *12 continuation payments to an employee to qualify for the sick pay exclusion provided by
Petitioners do not contend that the payments were received through accident or health insurance as such, so it is clear that petitioners, to prevail, must show that the payments were received by petitioner from his employer under an accident or health plan for employees.
Respondent contends that Aaron had no accident or health plan for its employees and that no payments received by petitioner from Aaron during the period he was absent from work can be considered as received under a plan that would qualify under
The record herein presents somewhat the same problem that was considered by this Court in
There is considerable doubt whether an accident or health
A plan presupposes a predetermined course of action under prescribed circumstances, and a plan, for purposes of
In the present case, petitioner was paid his regular salary for the period he was absent from work after his heart attack in 1960, and the sales manager testified that the decision to pay petitioner was made by him in New York in conference with other executive officers of the company, who considered petitioner's length of service and his value to the company. The sales manager testified further that Aaron had a general practice of continuing the salaries of employees who were absent from work for bona fide reasons, but that "We do not have any notified illness policy. We do have what I would term a general practice of paying our employees during their absence for any good reason, whether it be sickness or they have to leave for any occasion that warrants the consideration."
But when petitioner's assistant was absent from work in December 1960, it appears that there was some question as to whether his salary would be continued during his illness, and that the management in New York had decided not to continue his salary until petitioner finally prevailed upon them to do so. In the testimony concerning *19 this incident, there is no indication whatever that any determinant other than the discretion of management to pay or not to pay the continued salary entered into the decision. It is implicit in the testimony of all the witnesses who testified that the management of Aaron would make any decisions concerning salary continuations when the problem arose, and that there were no definite rules for determining in advance of a particular employee's absence from work whether none, some, or many payments would be made to him. There is nothing in the record to indicate that an employee could really count on his salary being continued if he became ill and unable to work for any length of time, or if his salary was paid during the first part of his illness that he could anticipate how long the payments would continue. Nor is there any evidence that petitioner's employment contract contained any provision for continuation of his salary during illness. Compare
The *20 evidence as to the "general practice" of Aaron is similar to that of the "policy" of the employer in the
*358 Because we are unable to conclude that petitioner received any payments in 1960 through an accident or health plan, we sustain respondent's determination, and it is unnecessary for us to consider the alternative argument advanced by respondent that petitioner's wage continuation payments were less than the $ 1,600 claimed by petitioners.
1. It is not specifically shown in the record how petitioners arrived at this amount but presumably it represents $ 100 per week for the last 16 weeks of the year 1960.↩
2. All statutory references are to the Internal Revenue Code of 1954 unless otherwise indicated.
3. Also see
4.
Sections 104(a) (3) and 105 (b), (c), and (d) exclude from gross income certain amounts received through accident or health insurance.
5. In the light of the legislative history of
This, together with the fact that