Brown v. Comm'r of Internal Revenue, Docket Nos. 3947-62

Citation47 T.C. 399
Decision Date18 January 1967
Docket Number2659-63— 2661-63.,Docket Nos. 3947-62,2050-63,2562-63
PartiesWILLIAM A. BROWN, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

R. Monroe Schwartz, for the petitioners.

Vallie C. Brooks, for the respondent.

The petitioners, six airline pilots for Southern Airways, Inc., went out on strike against the airline in June 1960, and during 1960 and 1961 received strike benefit payments from their union, Air Line Pilots Association. Five of the petitioners were active members and one was an apprentice member of the association. The benefits were paid pursuant to an established schedule or formula, based upon the pilot's preceding year's airline income, and were paid from assessments made by the association against member pilots of other airlines who were not engaged in any work of stoppage. A minimum requirement for receipt of the benefit was that the recipient refrain from flying the planes of the airline. Payment of the benefits was not conditioned upon the pilot's need. Held, that the strike payments constituted gross income within the meaning of the 16th amendment to the Constitution and sec. 61(a) I.R.C. 1954, and are not excludable from gross income as gifts under sec. 102(a) of the Code. Held, further, that any underpayment of tax resulting from failure of the petitioners to report the benefits as income was not due to negligence or intentional disregard of rules and regulations within the meaning of sec. 6653(a) of the Code, and that the petitioners are therefore not liable for additions to tax under that section.

ATKINS, Judge:

The respondent determined deficiencies in the petitioners' income taxes as follows:

+-----------------------------------------------------------------------------+
                ¦       ¦                                       ¦       ¦          ¦Addition  ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦Docket ¦Petitioner                             ¦Taxable¦Deficiency¦to tax    ¦
                ¦       ¦                                       ¦       ¦          ¦sec.      ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦No.    ¦                                       ¦year   ¦          ¦6653(a),  ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦       ¦                                       ¦       ¦          ¦I.R.C.    ¦
                ¦       ¦                                       ¦       ¦          ¦1954      ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦3947-62¦William A. Brown                       ¦1960   ¦$558.22   ¦          ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦2050-63¦Robert E. Owens, Jr., and Elizabeth D. ¦1960   ¦526.01    ¦          ¦
                ¦       ¦Owens                                  ¦       ¦          ¦          ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦2562-63¦Joesph H. Ferrill and Margaret Ferrill ¦1961   ¦946.76    ¦$47.33    ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦2659-63¦Frank H. Abbott and Dorothy G. Abbott  ¦1960   ¦998.49    ¦49.93     ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦2660-63¦Grady C. Dixon and Joyce S. Dixon      ¦1960   ¦929.71    ¦26.09     ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦       ¦                                       ¦( 1960 ¦365.51    ¦18.28     ¦
                +-------+---------------------------------------+-------+----------+----------¦
                ¦2661—63¦Alfred C. Brandon, Jr., and Louise M.  ¦( 1961 ¦1,263.41  ¦63.18     ¦
                ¦       ¦Brandon                                ¦       ¦          ¦          ¦
                +-----------------------------------------------------------------------------+
                

The respondent having conceded error with respect to one of the issues in docket No. 2659-63, the only issues remaining for decision herein are: (1) Whether strike benefit payments received by the petitioners during the taxable years in issue are includable in their gross income, and (2) whether the petitioners in docket Nos. 2562-63, 2659-63, 2660-63, and 2661-63 are liable for additions to tax for the taxable years in issue on account of negligence or intentional disregard of rules and regulations.

FINDINGS OF FACT

Some of the facts have been stipulated and the stipulations are incorporated herein by this reference.

All of the petitioners filed their Federal income tax returns for the taxable years involved herein with the district director of internal revenue, Nashville, Tenn. The female petitioners are parties herein only because they filed joint returns with their husbands, and the male petitioners will hereinafter be referred to as the petitioners.

During the years 1960 and 1961 the petitioners were employed as airline pilots by Southern Airways, Inc., a regularly scheduled commercial airline (hereinafter referred to as Southern) and were based in Memphis, Tenn.

The certified collective bargaining representative at Southern is the Air Line Pilots Association (hereinafter referred to as ALPA). ALPA is a nonprofit, employee-representing association with its home office located at Chicago, Ill., and is affiliated with the American Federation of Labor-Congress of Industrial Organizations. Some of ALPA's objectives, as set forth in its constitution, are to establish and exercise the right of collective bargaining for the purpose of making and maintaining employment agreements covering rates of pay and working conditions for its members, and to generally safeguard the rights, individually and collectively, of its members. ALPA consists of a Pilots Division and a Steward and Stewardesses Division, each of which divisions is fiscally separate, self-sustaining, and makes and implements its separate policies.

The administrative structure of ALPA consists of a board of directors, an executive committee, an executive board, master executive councils, local councils, and local executive councils. The board of directors is the highest governing body of ALPA and is vested with the general management and conduct of its business affairs. It is composed of high officials from all of the local councils. The executive committee and the executive board are responsible for the implementation of the policies announced by the directors. A master executive council is formed for each airlines are presented by ALPA, and functions as a coordinating council for the membership of that airline. Local councils of ALPA are established in various cities for each airline when a majority of all flight deck operating crew members employed on such airline in a particular city are active members of ALPA in good standing. Each local council has a local executive council which is responsible for the proper management of the business of the local council.

In June 1960 the Southern pilots had two local councils: Council 112 in Atlanta and council 74 in Memphis. These two local councils were controlled by the master executive council for Southern. During the years 1960 and 1961 each of the petitioners, with the exception of William A. Brown, was an active member of the Memphis local council 74 of ALPA. Brown was an apprentice member of such council. An active member of ALPA is any pilot who has completed a required 1-year probationary period with his company and is voted into the organization by the active mem0ers of the local council. Such members accept and agree to abide by the constitution and bylaws of ALPA. An apprentice member is any pilot who possesses all of the requirements for active membership with the exception of having completed the required probationary period.

Dues are paid by active members only. The amount thereof is, at the election of the member, either a percentage of his annual airline income for the previous year or a flat rate based on his flight status. Apprentice members do not pay dues and do not assume any financial obligations to ALPA. They are excluded from rights and privileges of the association. They may attend local council meetings, but may not vote.

The constitution of ALPA provides that any member may be fined, suspended, or expelled, for, among other things, disobeying or failing to comply with a decision of the board of directors, the executive board, the executive committee, the master executive council, or the local council, or for refusing or willfully neglecting to pay dues, assessments, fines, or financial obligations to ALPA.

The policy manual of ALPA specifically provides that any member who participates in strikebreaking by actually flying the planes of an airline involved in a strike shall be automatically expelled from membership. The policy manual of ALPA, as adopted by its governing bodies, provides for the payment of strike benefit assistance to all pilots (when certified by the local executive council), whether members, nonmembers, or apprentice members, who are deprived of airline income due to (a) being involved in processing a properly authorized strike; (b) a furlough or lockout by management arising directly from ALPA's efforts to resolve a dispute; or (c) the implementation of ALPA policy by a group of members or by ALPA. Payment of strike benefits to striking pilots is contingent upon their refraining from flying for the airline involved in a strike and upon their active support of the strike effort, through performance of any duties, including picketing, which may be assigned by local leadership.

Dues paid to ALPA cover its normal operating expenses, but do not include any amount for emergency programs, such as strike benefit assistance. Financial assistance for members who may be involved in a properly authorized strike is provided through the levying of special assessments on all members of ALPA. A strike assessment must be approved by the board of directors....

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