This section contains the nature of the case and procedural background.

From 1933-1935 DuPont owned all of IFC (P) stock. In 1936 DuPont owned 2/3rds of the stock of P and General Motors owned 1/3rd. During the years 1933-36, P adopted a company bonus plan to motivate employees; it was the same plan that DuPont had for its own employees. Under the Class B part of the plan, awards were made to those employees who had contributed greatly to the success of P and were to be made from a portion of P's profits, which the finance committee would set aside in a Class B fund. Bonus recommendations were to be made by the president or heads of departments, and the executive committee of the board would then have final say on who got a Class B bonus. Bonuses were in the form of common stock in DuPont or cash to be invested in such stock. During 1936, P awarded 150 shares of bonus stock whose cost to P on the date of delivery was $16,153.36 but whose market value was $24,858.75. Each of the employees who got stock paid taxes and they used market value at time of delivery. P took a deduction of $24,858,75. The IRS wanted the taxes on the $8,705.39 difference between acquisition and market value at time of delivery. The Tax Court decided for the IRS. This appeal resulted.

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