348 U.S. 426 (1955), 199, Commissioner v. Glenshaw Glass Co.

Docket Nº:No. 199
Citation:348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483
Party Name:Commissioner v. Glenshaw Glass Co.
Case Date:March 28, 1955
Court:United States Supreme Court
 
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Page 426

348 U.S. 426 (1955)

75 S.Ct. 473, 99 L.Ed. 483

Commissioner

v.

Glenshaw Glass Co.

No. 199

United States Supreme Court

March 28, 1955

Argued February 28, 1955

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Syllabus

Money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble damage antitrust recovery must be reported by a taxpayer as "gross income" under § 22(a) of the Internal Revenue Code of 1939. Pp. 427-433.

(a) In determining what constitutes "gross income" as defined in § 22(a), effect must be given to the catch-all language "gains or profits and income derived from any source whatever." Pp. 429-430.

(b) Eisner v. Macomber, 252 U.S. 189, distinguished. Pp. 430-431.

(c) The mere fact that such payments are extracted from the wrongdoers as punishment for unlawful conduct cannot detract from their character as taxable income to the recipients. P. 431.

(d) A different result is not required by the fact that § 22 (a) was reenacted without change after the Board of Tax Appeals had held punitive damages nontaxable in Highland Farms Corp., 42 B.T.A. 1314. Pp. 431-432.

(e) The legislative history of the Internal Revenue Code of 1954 does not require a different result. The definition of gross income was simplified, but no effect upon its present broad scope was intended. P. 432.

(f) Punitive damages cannot be classified as gifts, nor do they come under any other exemption in the Code. P. 432.

211 F.2d 928 reversed.

Page 427

WARREN, J., lead opinion

MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.

This litigation involves two cases with independent factual backgrounds, yet presenting the identical issue. The two cases were consolidated for argument before the Court of Appeals for the Third Circuit, and were heard en banc. The common question is whether money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble damage antitrust recovery must be reported by a taxpayer as gross income under § 22(a) of the Internal Revenue Code of 1939.1 In a single opinion, 211 F.2d 928, the Court of Appeals affirmed the Tax Court's separate rulings in favor of the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the frequent recurrence of the question and differing interpretations by the lower courts of this Court's decisions bearing upon the problem, we granted the Commissioner of Internal Revenue's ensuing petition for certiorari. 348 U.S. 813.

The facts of the cases were largely stipulated, and are not in dispute. So far as pertinent, they are as follows:

Commissioner v. Glenshaw Glass Co. -- The Glenshaw Glass Company, a Pennsylvania corporation, manufactures glass bottles and containers. It was engaged in protracted litigation with the Hartford-Empire Company, which manufactures machinery of a character used by Glenshaw. Among the claims advanced by Glenshaw

Page 428

were demands for exemplary damages for fraud2 and treble damages for injury to its business by reason of Hartford's violation of the federal antitrust laws.3 In December, 1947, the parties concluded a settlement of all pending litigation by which Hartford paid Glenshaw approximately $800,000. Through a method of allocation which was approved by the Tax Court, 18 T.C. 860, 870-872, and which is no longer in issue, it was ultimately determined that, of the total settlement, $324,529.94 represented payment of punitive damages for fraud and antitrust violations. Glenshaw did not report this portion of the settlement as income for the tax year involved. The Commissioner determined a deficiency, claiming as taxable the entire sum less only deductible legal fees. As previously noted, the Tax Court and the Court of Appeals upheld the taxpayer.

Commissioner v. William Goldman Theatres, Inc. -- William Goldman Theatres, Inc., a Delaware corporation operating motion picture houses in Pennsylvania, sued Loew's, Inc., alleging a violation of the federal antitrust laws and seeking treble damages. After a holding that a violation had occurred, William Goldman...

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