Stern v. Commissioner of Internal Revenue

• Decision Date: 19 July 1943
• Docket Number: No. 212.,212.
• Citation: 137 F.2d 43
• Parties: STERN v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

137 F.2d 43 (1943)

STERN v. COMMISSIONER OF INTERNAL REVENUE.

No. 212.

Circuit Court of Appeals, Second Circuit.

July 19, 1943.

COPYRIGHT MATERIAL OMITTED

Abraham L. Bienstock, of New York City, for petitioner. Helen Vogel Stern.

Samuel O. Clark, Jr., Asst. Atty. Gen. (Sewall Key, Helen R. Carloss, and Ray A. Brown, Sp. Assts. to Atty. Gen., of counsel), for Commissioner of Internal Revenue.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The record shows that the $50,000 advanced by the taxpayer's husband in connection with the settlement was disbursed to her personally but that all the other money, including the $400,000 placed in trust, was put up by the Erlanger brothers who furnished it in order to get rid of the actions brought by the taxpayer against their sister. The question is whether sums of money which were not the product of the husband's earnings or a part of his estate, but were wholly furnished by third parties, should be treated as his for income tax purposes merely because they were a means of relieving him from future payments of alimony.

The gross income of a taxpayer which, after permitted deductions, is subject to income taxes is defined (26 U.S.C.A. Int. Rev.Code, § 22) as including "gains, profits, and income derived from salaries, wages, or compensation for personal service * * * or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, * * * growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever." No part of the corpus of the trust here was derived from the earnings, property or business of the taxpayer's husband and because of this alone we think she must fail in her appeal.

It is argued, however, on behalf of the Commissioner that there was an actual or constructive receipt by Allison L. S. Stern of the advances made by the Erlangers and that these advances became his before they were applied to the trust, but the Tax Court found otherwise. It is true that if the Erlangers had given the moneys to him and he had set up a trust out of them a different case might have been made for treating the income as his. There was, however, no gift to him. What the Erlangers wanted was to have the taxpayer drop her law suits against their sister and thereby to get the latter out of her trouble and to have their family spared further publicity. To accomplish this they were willing to pay, and did pay, large sums. They paid it to set up a trust for the taxpayer and not to make a gift to Stern and Stern at no time had the funds they advanced within his control.

Douglas v. Willcuts, 296 U.S. 1, 56 S.Ct. 59, 80 L.Ed. 3, 101 A.L.R. 391; Old Colony Trust Company v. Commissioner, 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918, and United States v. Boston & Maine Railroad, 279 U. S. 732, 49 S.Ct. 505, 73 L.Ed. 929, relied on by the taxpayer, are not in point. In the first of these cases income payable to a wife (in lieu of alimony) out of a trust created from the property of her husband was held to be taxable against the latter. The income involved in United States v. Boston & Maine Railroad, 279 U.S. 732, 49 S.Ct. 505, 73 L.Ed. 929, was additional rent payable...