Cesarini v. United States

• Decision Date: 17 February 1969
• Docket Number: No. C 67-65.,C 67-65.
• Citation: 296 F. Supp. 3
• Parties: Ermenegildo CESARINI et al., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Ohio

296 F. Supp. 3

Ermenegildo CESARINI et al., Plaintiffs, v. UNITED STATES of America, Defendant.

No. C 67-65.

United States District Court N. D. Ohio, W. D.

February 17, 1969.

Murray & Murray, Sandusky, Ohio, for plaintiffs.

Mitchell Rogovin, Asst. Atty. Gen., David A. Wilson, Jr. and Daniel L. Power, Dept. of Justice, Washington, D. C., for defendant.

YOUNG, District Judge.

This is an action by the plaintiffs as taxpayers for the recovery of income tax payments made in the calendar year 1964. Plaintiffs contend that the amount of $836.51 was erroneously overpaid by them in 1964, and that they are entitled to a refund in that amount, together with the statutory interest from October 13, 1965, the date which they made their claim upon the Internal Revenue Service for the refund.

Plaintiffs and the United States have stipulated to the material facts in the case, and the matter is before the Court for final decision. The facts necessary for a resolution of the issues raised should perhaps be briefly stated before the Court proceeds to a determination of the matter. Plaintiffs are husband and wife, and live within the jurisdiction of the United States District Court for the Northern District of Ohio. In 1957, the plaintiffs purchased a used piano at an auction sale for approximately $15.00, and the piano was used by their daughter for piano lessons. In 1964, while cleaning the piano, plaintiffs discovered the sum of $4,467.00 in old currency, and since have retained the piano instead of discarding it as previously planned. Being unable to ascertain who put the money there, plaintiffs exchanged the old currency for new at a bank, and reported the sum of $4,467.00 on their 1964 joint income tax return as ordinary income from other sources. On October 18, 1965, plaintiffs filed an amended return with the District Director of Internal Revenue in Cleveland, Ohio, this second return eliminating the sum of $4,467.00 from the gross income computation, and requesting a refund in the amount of $836.51, the amount allegedly overpaid as a result of the former inclusion of $4,467.00 in the original return for the calendar year of 1964. On January 18, 1966, the Commissioner of Internal Revenue rejected taxpayers' refund claim in its entirety, and plaintiffs filed the instant action in March of 1967.

Plaintiffs make three alternative contentions in support of their claim that the sum of $836.51 should be refunded to them. First, that the $4,467.00 found in the piano is not includable in gross income under Section 61 of the Internal Revenue Code. (26 U.S.C. § 61) Secondly, even if the retention of the cash constitutes a realization of ordinary income under Section 61, it was due and owing in the year the piano was purchased, 1957, and by 1964, the statute of limitations provided by 26 U.S.C. § 6501 had elapsed. And thirdly, that if the treasure trove money is gross income for the year 1964, it was entitled to capial gains treatment under Section 1221 of Title 26. The Government, by its answer and its trial brief, asserts that the amount found in the piano is includable in gross income under Section 61(a) of Title 26, U.S.C., that the money is taxable in the year it was actually found, 1964, and that the sum is properly taxable at ordinary income rates, not being entitled to capital gains treatment under 26 U.S.C. §§ 1201 et seq.

After a consideration of the pertinent provisions of the Internal Revenue Code, Treasury Regulations, Revenue Rulings, and decisional law in the area, this Court has concluded that the taxpayers are not entitled to a refund of the amount requested, nor are they entitled to capital gains treatment on the income item at issue.

The starting point in determining whether an item is to be included in gross income is, of course, Section 61(a) of Title 26 U.S.C., and that section provides in part:

"Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: * * *" (Emphasis added.)

Subsections (1) through (15) of Section 61(a) then go on to list fifteen items specifically included in the computation of the taxpayer's gross income, and Part II of Subchapter B of the 1954 Code (Sections 71 et seq.) deals with other items expressly included in gross income. While neither of these listings expressly includes the type of income which is at issue in the case at bar, Part III of Subchapter B (Sections 101 et seq.) deals with items specifically excluded from gross income, and found money is not listed in those sections either. This absence of express mention in any of the code sections necessitates a return to the "all income from whatever source" language of Section 61(a) of the code, and the express statement there that gross income is "not limited to" the following fifteen examples. Section 1.61-1(a) of the Treasury Regulations, the corresponding section to Section 61(a) in the 1954 Code, reiterates this broad construction of gross income, providing in part:

"Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. * * *" (Emphasis added.)

The decisions of the United States Supreme Court have frequently stated that this broad all-inclusive language was used by Congress to exert the full measure of its taxing power under the Sixteenth Amendment to the United States Constitution. Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 429, 75 S.Ct. 473, 99 L.Ed. 483 (1955); Helvering v. Clifford, 309 U.S. 331, 334, 60 S.Ct. 554, 84 L.Ed. 788 (1940); Helvering v. Midland Mutual Life Ins. Co., 300 U.S. 216, 223, 57 S.Ct. 423, 81 L.Ed. 612 (1937); Douglas v. Willcuts, 296 U.S. 1, 9, 56 S.Ct. 59, 80 L.Ed. 3 (1935); Irwin v. Gavit, 268 U.S. 161, 166, 45 S.Ct. 475, 69 L.Ed. 897 (1925).

In addition, the Government in the instant case cites and relies upon an I.R.S. Revenue Ruling which is undeniably on point:

"The finder of treasure-trove is in receipt of taxable income, for Federal income tax purposes, to the extent of its value in United States currency, for the taxable year in which it is reduced to undisputed possession." Rev.Rul. 61, 1953-1, Cum.Bull. 17.

The plaintiffs argue that the above ruling does not control this case for two reasons. The first is that subsequent to the Ruling's pronouncement in 1953, Congress enacted Sections 74 and 102 of the 1954 Code, § 74 expressly including the value of prizes and awards in gross income in most cases, and § 102 specifically exempting the value of gifts received from gross income. From this, it is argued that Section 74 was added because prizes might otherwise be construed as non-taxable gifts, and since no such section was passed expressly taxing treasure-trove, it is therefore a gift which is non-taxable under Section 102. This line of reasoning overlooks the statutory scheme previously alluded to, whereby income from all sources is taxed unless the taxpayer can point to an express exemption. Not only have the taxpayers failed to list a specific exclusion in the instant case, but also the Government has pointed to express language covering the found money, even though it would not be required to do so under the broad language of Section 61(a) and the foregoing Supreme Court decisions interpreting it.

The second argument of the taxpayers in support of their contention that Rev. Rul. 61, 1953-1 should not be applied in this case is based upon the decision of Dougherty v. Commissioner, 10 T.C.M. 320, P-H Memo. T.C., ¶ 51,093 (1951). In that case the petitioner was an individual who had never filed an income tax return, and the Commissioner was attempting to determine his gross income by the so-called "net worth" method. Dougherty had a substantial increase in his net worth, and attempted to partially explain away his lack of reporting it by claiming that he had found $31,000.00 in cash inside a used chair he had purchased in 1947. The Tax Court's opinion deals primarily with the factual question of whether or not Dougherty actually did find this money in a chair, finally concluding that he did not, and from this petitioners in the instant case argue that if such found money is clearly gross income, the Tax Court would not have reached the fact question, but merely included the $31,000.00 as a matter of law. Petitioners argue that since the Tax Court did not include the sum in Dougherty's gross income until they had found as a fact that it was not treasure trove, then by implication such discovered money is not taxable. This argument must fail for two reasons. First, the Dougherty decision precedes Rev.Rul. 61, 1953-1 by two years, and thus was dealing with what then was an uncharted area of the gross income provisions of the Code. Secondly, the case cannot be read as authority for the proposition that treasure trove is not includable in gross income, even if the revenue ruling had not been issued two years later.¹

In partial summary, then, the arguments of the taxpayers which attempt to avoid the application of Rev.Rul. 61, 1953-1 are not well taken. The Dougherty case simply does not hold one way or another on the problem before this Court, and therefore petitioners' reliance upon it is misplaced. The other branch of their argument, that found money must be construed to be a gift under Section 102 of the 1954 Code since it is not expressly included as are prizes in Section 74 of the Code, would not even be effective were it being urged at a time prior to 1953, when the ruling had not yet been promulgated. In addition to the numerous cases in the Supreme Court which uphold the broad sweeping construction of Section 61(a) found in Treas.Reg. § 1.61-1(a), other courts and commentators writing at a point in time before the ruling came down took the position that windfalls, including found monies, were properly includable in gross...