Commissioner of Internal Revenue v. Duberstein Stanton v. United States, s. 376

• Citation: 363 U.S. 278,4 L.Ed.2d 1218,80 S.Ct. 1190
• Decision Date: 13 June 1960
• Docket Number: Nos. 376,546,s. 376
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Mose DUBERSTEIN et al. Alden D. STANTON et al., Petitioners, v. UNITED STATES of America
• Court: U.S. Supreme Court

363 U.S. 278

80 S.Ct. 1190

4 L.Ed.2d 1218

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

v Mose DUBERSTEIN et al.

Alden D. STANTON et al., Petitioners,

v. UNITED STATES of America.

Nos. 376, 546.

Argued March 23, 24, 1960.

Decided June 13, 1960.

No. 376:

Mr. Philip Elman, Washington, D.C., for petitioner.

Mr. Sidney G. Kusworm, Sr., Dayton, Ohio, for respondents.

No. 546:

Mr. Clendon H. Lee, New York City, for petitioners.

Mr. Wayne G. Barnett, Washington, D.C., for respondent.

Mr. Justice BRENNAN delivered the opinion of the Court.

These two cases concern the provision of the Internal Revenue Code which excludes from the gross income of an income taxpayer 'the value of property acquired by gift.'¹ They pose the frequently recurrent question whether a specific transfer to a taxpayer in fact amounted to a 'gift' to him within the meaning of the statute. The importance to decision of the facts of the cases requires that we state them in some detail.

No. 376, Commissioner v. Duberstein. The taxpayer, Duberstein,² was president of the Duberstein Iron & Metal Company, a corporation with headquarters in Dayton, Ohio. For some years the taxpayer's company had done business with Mohawk Metal Corporation, whose headquarters were in New York City. The president of Mohawk was one Berman. The taxpayer and Berman had generally used the telephone to transact their companies' business with each other, which consisted of buying and selling metals. The taxpayer testified, without elaboration, that he knew Berman 'personally' and had known him for about seven years. From time to time in their telephone conversations, Berman would ask Duberstein whether the latter knew of potential customers for some of Mohawk's products in which Duberstein's company itself was not interested. Duberstein provided the names of potential customers for these items.

One day in 1951 Berman telephoned Duberstein and said that the information Duberstein had given him had proved so helpful that he wanted to give the latter a present. Duberstein stated that Berman owed him nothing. Berman said that he had a Cadillac as a gift for Duberstein, and that the latter should send to New York for it; Berman insisted that Duberstein accept the car, and the latter finally did so, protesting however that he had not intended to be compensated for the information. At the time Duberstein already had a Cadillac and an Oldsmobile, and felt that he did not need another car. Duberstein testified that he did not think Berman would have sent him the Cadillac if he had not furnished him with information about the customers. It appeared that Mohawk later deducted the value of the Cadillac as a business expense on its corporate income tax return.

Duberstein did not include the value of the Cadillac in gross income for 1951, deeming it a gift. The Commissioner asserted a deficiency for the car's value against him, and in proceedings to review the deficiency the Tax Court affirmed the Commissioner's determination. It said that 'The record is significantly barren of evidence revealing any intention on the part of the payor to make a gift. * * * The only justifiable inference is that the automobile was intended by the payor to be remuneration for services rendered to it by Duberstein.' The Court of Appeals for the Sixth Circuit reversed. 265 F.2d 28, 30.

No. 546, Stanton v. United States. The taxpayer, Stanton, had been for approximately 10 years in the employ of Trinity Church in New York City. He was comptroller of the Church corporation, and president of a corporation, Trinity Operating Company, the church set up as a fully owned subsidiary to manage its real estate holdings, which were more extensive than simply the church property. His salary by the end of his employment there in 1942 amounted to $22,500 a year. Effective November 30, 1942, he resigned from both positions to go into business for himself. The Operating Company's directors, who seem to have included the rector and vestrymen of the church, passed the following resolution upon his resignation: 'Be it resolved that in appreciation of the services rendered by Mr. Stanton * * * a gratuity is hereby awarded to him of Twenty Thousand Dollars, payable to him in equal instalments of Two Thousand Dollars at the end of each and every month commencing with the month of December, 1942; provided that, with the discontinuance of his services, the Corporation of Trinity Church is released from all rights and claims to pension and retirement benefits not already accrued up to November 30, 1942.'

The Operating Company's action was later explained by one of its directors as based on the fact that, 'Mr. Stanton was liked by all of the Vestry personally. He had a pleasing personality. He had come in when Trinity's affairs were in a difficult situation. He did a splendid piece of work, we felt. Besides that * * * he was liked by all of the members of the Vestry personally.' And by another: '(W)e were all unanimous in wishing to make Mr. Stanton a gift. Mr. Stanton had loyally and faithfully served Trinity in a very difficult time. We thought of him in the highest regard. We understood that he was going in business for himself. We felt that he was entitled to that evidence of good will.'

On the other hand, there was a suggestion of some ill-feeling between Stanton and the directors, arising out of the recent termination of the services of one Watkins, the Operating Company's treasurer, whose departure was evidently attended by some acrimony. At a special board meeting on October 28, 1942, Stanton had intervened on Watkins' side and asked reconsideration of the matter. The minutes reflect that 'resentment was expressed as to the 'presumptuous' suggestion that the action of the Board, taken after long deliberation, should be changed.' The Board adhered to its determination that Watkins be separated from employment, giving him an opportunity to resign rather than be discharged. At another special meeting two days later it was revealed that Watkins had not resigned; the previous resolution terminating his services was then viewed as effective; and the Board voted the payment of six months' salary to Watkins in a resolution similar to that quoted in regard to Stanton, but which did not use the term 'gratuity.' At the meeting, Stanton announced that in order to avoid any such embarrassment or question at any time as to his willingness to resign if the Board desired, he was tendering his resignation. It was tabled, though not without dissent. The next week, on November 5, at another special meeting, Stanton again tendered his resignation which this time was accepted.

The 'gratuity' was duly paid. So was a smaller one to Stanton's (and the Operating Company's) secretary, under a similar resolution, upon her resignation at the same time. The two corporations shared the expense of the payments. There was undisputed testimony that there were in fact no enforceable rights or claims to pension and retirement benefits which had not accrued at the time of the taxpayer's resignation, and that the last proviso of the resolution was inserted simply out of an abundance of caution. The taxpayer received in cash a refund of his contributions to the retirement plans, and there is no suggestion that he was entitled to more. He was required to perform no further services for Trinity after his resignation.

The Commissioner asserted a deficiency against the taxpayer after the latter had failed to include the payments in question in gross income. After payment of the deficiency and administrative rejection of a refund claim, the taxpayer sued the United States for a refund in the District Court for the Eastern District of New York. 137 F.Supp. 803. The trial judge, sitting without a jury, made the simple finding that the payments were a 'gift,'³ and judgment was entered for the taxpayer. The Court of Appeals for the Second Circuit reversed. 268 F.2d 727.

The Government, urging that clarification of the problem typified by these two cases was necessary, and that the approaches taken by the Courts of Appeals for the Second and the Sixth Circuits were in conflict, petitioned for certiorari in No. 376, and acquiesced in the taxpayer's petition in No. 546. On this basis, and because of the importance of the question in the administration of the income tax laws, we granted certiorari in both cases. 361 U.S. 923, 80 S.Ct. 291, 4 L.Ed.2d 239.

The exclusion of property acquired by gift from gross income under the federal income tax laws was made in the first income tax statute⁴ passed under the authority of the Sixteenth Amendment, and has been a feature of the income tax statutes ever since. The meaning of the term 'gift' as applied to particular transfers has always been a matter of contention.⁵ Specific and illuminating legislative history on the point does not appear to exist. Analogies and inferences drawn from other revenue provisions, such as the estate and gift taxes, are dubious. See Lockard v. Commissioner, 1 Cir., 166 F.2d 4099 The meaning of the statutory term has been shaped largely by the decisional law. With this, we turn to the contentions made by the Government in these cases.

First. The Government suggests that we promulgate a new 'test' in this area to serve as a standard to be applied by the lower courts and by the Tax Court in dealing with the numerous cases that arise.⁶ We reject this invitation. We are of opinion that the governing principles are necessarily general and have already been spelled out in the opinions of this Court, and that the problem is one which, under the present statutory framework, does not lend itself to any more definitive statement that would produce a talisman for the solution of concrete cases. The cases at bar are fair examples of the settings in which the problem usually arises. They present situations in which payments have been made in a context with business overtones—an employer making a...