Olk v. U.S.

• Decision Date: 01 June 1976
• Docket Number: No. 75-2181,75-2181
• Citation: 536 F.2d 876
• Parties: 76-2 USTC P 9484 Wendell OLK, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 876

536 F.2d 876

76-2 USTC P 9484

Wendell OLK, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 75-2181.

United States Court of Appeals Ninth Circuit.

June 1, 1976.

Rehearing Denied July 14, 1976.

Michael L. Paup, Atty. (argued), of Tax Div., Dept. of Justice, Washington, D. C., for defendant-appellant.

George Bouchard (argued), Laguna Hills, Cal., for plaintiff-appellee.

Before GOODWIN and SNEED, Circuit Judges, and VAN PELT, ^* District Judge.

SNEED, Circuit Judge:

This is a suit to obtain a refund of federal income taxes. The issue is whether monies, called "tokes" in the relevant trade, received by the taxpayer, a craps dealer employed by Las Vegas casinos, constitute taxable income or gifts within the meaning of section 102(a), Int.Rev.Code of 1954. The taxpayer insists "tokes" are non-taxable gifts. If he is right, he is entitled to the refund for which this suit was brought. The trial court in a trial without a jury held that "tokes" were gifts. The Government appealed and we reverse and hold that "tokes" are taxable income.

I. The Facts.

There is no dispute about the basic facts which explain the setting in which "tokes" are paid and received. The district court's finding with respect to such facts which we accept are, in part, as follows:

In 1971 plaintiff was employed as a craps dealer in two Las Vegas gambling casinos, the Horseshoe Club and the Sahara Hotel. The basic services performed by plaintiff and other dealers were described at trial. There are four persons involved in the operation of the game, a boxman and three dealers. One of the three dealers, the stickman, calls the roll of the dice and then collects them for the next shooter. The other two dealers collect losing bets and pay off winning bets under the supervision of the boxman. The boxman is the casino employee charged with direct supervision of the dealers and the play at one particular table. He in turn is supervised by the pit boss who is responsible for several tables. The dealers also make change, advise the boxman when a player would like a drink and answer basic questions about the game for the players.

Dealers are forbidden to fraternize or engage in unnecessary conversation with the casino patrons, and must remain in separate areas while on their breaks. Dealers must treat all patrons equally, and any attempt to provide special service to a patron is grounds for termination.

At times, players will give money to the dealers or place bets for them. The witnesses testified that most casinos do not allow boxmen to receive money from patrons because of their supervisory positions, although some do permit this. The pit bosses are not permitted to receive anything from patrons because they are in a position in which they can insure that a patron receives some special service or treatment.

The money or tokes are combined by the four dealers and split equally at the end of each shift so that a dealer will get his share of the tokes received even while he is taking his break. Uncontradicted testimony indicated that a dealer would be terminated if he kept a toke rather than placed it in the common fund.

Casino management either required the dealers to pool and divide tokes or encouraged them to do so. Although the practice is tolerated by management, it is not encouraged since tokes represent money that players are not wagering and thus cannot be won by the casino. Plaintiff received about $10 per day as his share of tokes at the Horseshoe Club and an average of $20 per day in tokes at the Sahara. (footnotes omitted).

Additional findings of fact by the district court are that the taxpayer worked as a stickman and dealer and at all times was under the supervision of the boxman who in turn was supervised by the pit boss. Also the district court found that patrons sometimes give money to dealers, other players or mere spectators at the game, but that between 90-95% of the patrons give nothing to a dealer. No obligation on the part of the patron exists to give to a dealer and "dealers perform no service for patrons which a patron would normally find compensable." Another finding is that there exists "no direct relation between services performed for management by a dealer and benefit or detriment to the patron."

There then follows two final "findings of fact" which taken together constitute the heart of the controversy before us. These are as follows:

17. The tokes are given to dealers as a result of impulsive generosity or superstition on the part of players, and not as a form of compensation for services.

18. Tokes are the result of detached and disinterested generosity on the part of a small number of patrons.

These two findings, together with the others set out above, bear the unmistakable imprint of Commissioner v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1959), particularly that portion of the opinion which reads as follows:

The course of decision here makes it plain that the statute does not use the term "gift" in the common-law sense, but in a more colloquial sense. This Court has indicated that a voluntary executed transfer of his property by one to another, without any consideration or compensation therefor, though a common-law gift, is not necessarily a "gift" within the meaning of the statute. For the Court has shown that the mere absence of a legal or moral obligation to make such a payment does not establish that it is a gift. Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 730 (49 S.Ct. 499, 504, 73 L.Ed. 918, 928). And, importantly, if the payment proceeds primarily from "the constraining force of any moral or legal duty," or from "the incentive of anticipated benefit" of an economic nature, Bogardus v. Commissioner, 302 U.S. 34, 41 (58 S.Ct. 61, 65, 82 L.Ed. 32, 37), it is not a gift. And, conversely, "(w)here the payment is in return for services rendered, it is irrelevant that the donor derives no economic benefit from it." Robertson v. United States, 343 U.S. 711, 714 (72 S.Ct. 994, 996, 96 L.Ed. 1237, 1240). A gift in the statutory sense, on the other hand, proceeds from a "detached and disinterested generosity," Commissioner of Internal Revenue v. LoBue, 351 U.S. 243, 246 (76 S.Ct. 800, 803, 100 L.Ed. 1142, 1147); "out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, 343 U.S. at page 714 (72 S.Ct. 904 at page 996, 96 L.Ed. at page 1240). And in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention." Bogardus v. Commissioner, 302 U.S. 34, 43 (58 S.Ct. 61, 65, 82 L.Ed. 32). "What controls is the intention with which payment, however voluntary, has been made." Id., 302 U.S. at page 45 (58 S.Ct. 61 at page 66, 82 L.Ed. at page 39) (dissenting opinion).

Id. at 285-86, 80 S.Ct. at 1196, 4 L.Ed. at 1224-25 (footnotes omitted).

II. Finding Number 18 Is A Conclusion of Law.

The position of the taxpayer is simple. The above findings conform to the meaning of gifts as used in section 102 of the Code. Duberstein further teaches, the taxpayer asserts, that whether a receipt qualified as a non-taxable gift is "basically one of fact," id. at 290, 80 S.Ct. at 1199, 1190, 4 L.Ed.2d at 1228 and appellate review of such findings is restricted to determining whether they are clearly erroneous. Because none of the recited findings are clearly erroneous, concludes the taxpayer, the judgment of the trial court...