James A. Wood and Dorothy D. Wood v. United States

James A. and Dorothy D. Wood brought this suit seeking to recover $17,985.45 in income taxes paid for the calendar year 1972. The question presented is whether the lump sum received by taxpayer upon termination of his employment due to disability should be included in gross income. The district court ruled that it should not, and the government has taken this appeal. We affirm.

Taxpayer was employed by Peninsula Newspapers, Inc., and was a member of a profit-sharing plan and trust that qualified as such under 26 U.S.C. § 401 (a). The company was the sole contributor to the trust. Under the plan it contributed (after the first two years) a decreasing percentage of its net profits in excess of its “working capital supplement,” (defined as 3 percent of the year-end book value or gross sales, whichever was larger). The schedule of contributions started at 85 percent of the first $100,000 of this excess, gradually decreasing to 10 percent of all excess over $400,000. Each employee member had an account in the plan. The company’s contributions were allocated to the accounts of members on two different bases. One half of the contribution was allocated on the basis of compensation…