Source: https://supreme.justia.com/cases/federal/us/363/278/
Timestamp: 2019-04-22 20:44:13+00:00

Document:
1. This Court rejects the Government's suggestion that it promulgate a new "test" to serve as a standard to be applied by the lower courts and by the Tax Court in dealing with numerous cases involving the question what is a "gift" excludable from income under the Internal Revenue Code, since the governing principles are necessarily general, and have already been spelled out in the opinions of this Court. Pp. 363 U. S. 284-286.
2. The conclusion whether a transfer amounts to a "gift" is one that must be reached on consideration of all the factors. While the principles urged by the Government may, in nonabsolute form as crystallizations of experience, prove persuasive to the trier of facts in a particular case, they cannot be laid down as a matter of law. Pp. 363 U. S. 287-289.
3. Determination in each individual case as to whether the transaction in question was a "gift" must be based ultimately on the application of the factfinding tribunal's experience with the mainsprings of human conduct to the totality of the facts in the case, and appellate review of the conclusion reached by the fact-finding tribunal must be quite restricted. Pp. 363 U. S. 289-291.
4. In No. 376, Duberstein, an individual taxpayer, gave to a business corporation, upon request, the names of potential customers. The information proved valuable, and the corporation reciprocated by giving Duberstein a Cadillac automobile, charging the cost thereof as a business expense on its own corporate income tax return. The Tax Court concluded that the car was not a "gift" excludable from income under § 22(b)(3) of the Internal Revenue Code of 1939.
that the Tax Court's conclusion was "clearly erroneous," and the Court of Appeals erred in reversing its judgment. Pp. 363 U. S. 279-281, 363 U. S. 291-292.
5. In No. 546, Stanton, upon resigning as comptroller of a church corporation and as president of its wholly owned subsidiary created to manage its extensive real estate holdings, was given "a gratuity" of $20,000 "in appreciation of" his past services. The Commissioner assessed an income tax deficiency against him for failure to include this amount in his gross income. Stanton paid the deficiency and sued in a Federal District Court for a refund. The trial judge, sitting without a jury, made the simple finding that the payment was a "gift," and entered judgment for Stanton. The Court of Appeals reversed.
Held: the finding of the District Court was inadequate; the judgment of the Court of Appeals is vacated, and the case is remanded to the District Court for further proceedings. Pp. 363 U. S. 281-283, 363 U. S. 292-293.
268 F.2d 727, judgment vacated and cause remanded.
gift." [Footnote 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, [Footnote 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.
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.
"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.
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."
"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."
"[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."
"resentment was expressed as to the 'presumptuous' suggestion that the action of the Board, taken after long deliberation, should be changed."
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," [Footnote 3] and judgment was entered for the taxpayer. The Court of Appeals for the Second Circuit reversed. 268 F.2d 727.
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.
The exclusion of property acquired by gift from gross income under the federal income tax laws was made in the first income tax statute [Footnote 4] 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. [Footnote 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, 166 F.2d 409. 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.
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 payment to a retiring employee; a businessman giving something of value to another businessman who has been of advantage to him in his business. In this context, we review the law as established by the prior cases here.
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 voluntarily 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, 279 U. S. 730. 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, 302 U. S. 41, 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, 343 U. S. 714. [Footnote 7] A gift in the statutory sense, on the other hand, proceeds from a "detached and disinterested generosity," Commissioner v. LoBue, 351 U. S. 243, 351 U. S. 246; "out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, at 343 U. S. 714. And, in this regard, the most critical consideration, as the Court was agreed in the leading case here, is the transferor's "intention."
The Government says that this "intention" of the transferor cannot mean what the cases on the common law concept of gift call "donative intent." With that we are in agreement, for our decisions fully support this. Moreover, the Bogardus case itself makes it plain that the donor's characterization of his action is not determinative -- that there must be an objective inquiry as to whether what is called a gift amounts to it in reality. 302 U.S. at 302 U. S. 40. It scarcely needs adding that the parties' expectations or hopes as to the tax treatment of their conduct, in themselves, have nothing to do with the matter.
It is suggested that the Bogardus criterion would be more apt if rephrased in terms of "motive," rather than "intention." We must confess to some skepticism as to whether such a verbal mutation would be of any practical consequence. We take it that the proper criterion, established by decision here, is one that inquires what the basic reason for his conduct was in fact -- the dominant reason that explains his action in making the transfer. Further than that we do not think it profitable to go.
and individuals, as to the availability of the "gift" exclusion to the transferee. The conclusion whether a transfer amounts to a "gift" is one that must be reached on consideration of all the factors.
agents who had sponsored the transfer. [Footnote 10] These considerations, also, reinforce us in our conclusion that, while the principles urged by the Government may, in nonabsolute form as crystallizations of experience, prove persuasive to the trier of facts in a particular case, neither they nor any more detailed statement than has been made can be laid down as a matter of law.
This conclusion may not satisfy an academic desire for tidiness, symmetry, and precision in this area, any more than a system based on the determinations of various factfinders ordinarily does. But we see it as implicit in the present statutory treatment of the exclusion for gifts, and in the variety of forums in which federal income tax cases can be tried. If there is fear of undue uncertainty or overmuch litigation, Congress may make more precise its treatment of the matter by singling out certain factors and making them determinative of the matters, as it has done in one field of the "gift" exclusion's former application, that of prizes and awards. [Footnote 12] Doubtless diversity of result will tend to be lessened somewhat, since federal income tax decisions, even those in tribunals of first instance turning on issues of fact, tend to be reported, and since there may be a natural tendency of professional triers of fact to follow one another's determinations, even as to factual matters. But the question here remains basically one of fact, for determination on a case-by-case basis.
the only inquiry is whether it cannot be said that reasonable men could reach differing conclusions on the issue. Baker v. Texas & Pacific R. Co., supra, at 359 U. S. 228. Where the trial has been by a judge without a jury, the judge's findings must stand unless "clearly erroneous." Fed.Rules Civ.Proc. 52(a).
"A finding is 'clearly erroneous' when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed."
at bottom, a recompense for Duberstein's past services, or an inducement for him to be of further service in the future. We cannot say with the Court of Appeals that such a conclusion was "mere suspicion" on the Tax Court's part. To us, it appears based in the sort of informed experience with human affairs that factfinding tribunals should bring to this task.
Court may have viewed the form of the resolution or the simple absence of legal consideration as conclusive. While the judgment of the Court of Appeals cannot stand, the four of us think there must be further proceedings in the District Court looking toward new and adequate findings of fact. In this, we are joined by MR. JUSTICE WHITTAKER, who agrees that the findings were inadequate, although he does not concur generally in this opinion.
Accordingly, in No. 376, the judgment of this Court is that the judgment of the Court of Appeals is reversed, and in No. 546, that the judgment of the Court of Appeals is vacated, and the case is remanded to the District Court for further proceedings not inconsistent with this opinion.
MR. JUSTICE HARLAN concurs in the result in No. 376. In No. 546, he would affirm the judgment of the Court of Appeals for the reasons stated by MR. JUSTICE FRANKFURTER.
MR. JUSTICE WHITTAKER, agreeing with Bogardus that whether a particular transfer is or is not a "gift" may involve "a mixed question of law and fact," 302 U.S. at 302 U. S. 39, concurs only in the result of this opinion.
MR. JUSTICE DOUGLAS dissents, since he is of the view that, in each of these two cases, there was a gift under the test which the Court fashioned nearly a quarter of a century ago in Bogardus v. Commissioner, 302 U. S. 34.
* Together with No. 546, Stanton et ux. v. United States, on certiorari to the United States Court of Appeals for the Second Circuit, argued March 24, 1960.
The operative provision in the cases at bar is § 22(b)(3) of the 1939 Internal Revenue Code. The corresponding provision of the present Code is § 102(a).
In both cases, the husband will be referred to as the taxpayer, although his wife joined with him in joint tax returns.
§ II.B., c. 16, 38 Stat. 167.
The first case of the Board of Tax Appeals officially reported in fact deals with the problem. Parrott v. Commissioner, 1 B.T.A. 1.
The Government's proposed test is stated: "Gifts should be defined as transfers of property made for personal, as distinguished from business, reasons."
The cases including "tips" in gross income are classic examples of this. See, e.g., Roberts v. Commissioner, 176 F.2d 221.
The parts of the Bogardus opinion which we touch on here are the ones we take to be basic to its holding, and the ones that we read as stating those governing principles which it establishes. As to them, we see little distinction between the views of the Court and those taken in dissent in Bogardus. The fear expressed by the dissent at 302 U.S. at 302 U. S. 44, that the prevailing opinion "seems" to hold "that every payment which in any aspect is a gift is . . . relieved of any tax," strikes us now as going beyond what the opinion of the Court held in fact. In any event, the Court's opinion in Bogardusdoes not seem to have been so interpreted afterwards. The principal difference, as we see it, between the Court's opinion and the dissent lies in the weight to be given the findings of the trier of fact.
"One struggles in vain for any verbal formula that will supply a ready touchstone. The standard set up by the statute is not a rule of law; it is rather a way of life. Life in all its fullness must supply the answer to the riddle."
Welch v. Helvering, 290 U. S. 111, 290 U. S. 115. The same comment well fits the issue in the cases at bar.
Cf., e.g., Nelson v. Commissioner, 203 F.2d 1.
In Bogardus, the Court was divided 5 to 4 as to the scope of review to be extended the factfinder's determination as to a specific receipt, in a context like that of the instant cases. The majority held that such a determination was "a conclusion of law, or at least a determination of a mixed question of law and fact." 302 U.S. at 302 U. S. 39. This formulation it took as justifying it in assuming a fairly broad standard of review. The dissent took a contrary view. The approach of this part of the Court's ruling in Bogardus, which we think was the only part on which there was real division among the Court, see note 8 supra, has not been afforded subsequent respect here. In Heininger, a question presenting at the most elements no more factual and untechnical than those here -- that of the "ordinary and necessary" nature of a business expense -- was treated as one of fact. Cf. note 9 supra. And in Dobson v. Commissioner, 320 U. S. 489, 320 U. S. 498, n. 22, Bogardus was adversely criticized insofar as it treated the matter as reviewable as one of law. While Dobson is, of course, no longer the law insofar as it ordains a greater weight to be attached to the findings of the Tax Court than to those of any other factfinder in a tax litigation, see note 13 infra, we think its criticism of this point in the Bogardus opinion is sound in view of the dominant importance of factual inquiry to decision of these cases.
I.R.C. § 74, which is a provision new with the 1954 Code. Previously, there had been holdings that such receipts as the "Pot O' Gold" radio giveaway, Washburn v. Commissioner, 5 T.C. 1333, and the Ross Essay Prize, McDermott v. Commissioner, 80 U.S.App.D.C. 176, 150 F.2d 585, were "gifts." Congress intended to obviate such rulings. S.Rep. No. 1622, 83d Cong., 2d Sess., p. 178. We imply no approval of those holdings under the general standard of the "gift" exclusion. Cf. Robertson v. United States, supra.
"The United States Courts of Appeals shall have exclusive jurisdiction to review the decisions of the Tax Court . . . in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury. . . ."
The last words first came into the statute through an amendment to § 1141(a) of the 1939 Code in 1948 (§ 36 of the Judicial Code Act, 62 Stat. 991). The purpose of the 1948 legislation was to remove from the law the favored position (in comparison with District Court and Court of Claims rulings in tax matters) enjoyed by the Tax Court under this Court's ruling in Dobson v. Commissioner, 320 U. S. 489. Cf. note 11 supra. See Grace Bros., Inc. v. Commissioner, 173 F.2d 170, 173.
"The resolution of the Board of Directors of the Trinity Operating Company, Incorporated, held November 19, 1942, after the resignations had been accepted of the plaintiff from his positions as controller of the corporation of the Trinity Church, and the president of the Trinity Operating Company, Incorporated, whereby a gratuity was voted to the plaintiff, Allen [sic] D. Stanton, in the amount of $20,000 payable to him in monthly installments of $2,000 each, commencing with the month of December, 1942, constituted a gift to the taxpayer, and therefore need not have been reported by him as income for the taxable years 1942, or 1943."
MR. JUSTICE BLACK, concurring and dissenting.
I agree with the Court's opinion and judgment reversing the judgment of the Court of Appeals in that case.
I dissent in No. 546, Stanton v. United States. The District Court found that the $20,000 transferred to Mr. Stanton by his former employer at the end of ten years' service was a gift, and therefore exempt from taxation under I.R.C. of 1939, § 22(b)(3) (now I.R.C. of 1954, § 102(a)). I think the finding was not clearly erroneous, and that the Court of Appeals was therefore wrong in reversing the District Court's judgment. While conflicting inferences might have been drawn, there was evidence to show that Mr. Stanton's long services had been satisfactory, that he was well liked personally and had given splendid service, that the employer was under no obligation at all to pay any added compensation, but made the $20,000 payment because prompted by a genuine desire to make him a "gift," to award him a "gratuity." Cf. Commissioner v. LoBue, 351 U. S. 243, 351 U. S. 246-247. The District Court's finding was that the added payment "constituted a gift to the taxpayer, and therefore need not have been reported by him as income. . . ." The trial court might have used more words, or discussed the facts set out above in more detail, but I doubt if this would have made its crucial, adequately supported finding any clearer. For this reason, I would reinstate the District Court's judgment for petitioner.
MR. JUSTICE FRANKFURTER, concurring in the judgment in No. 376 and dissenting in No. 546.
income for purposes of ascertaining the "gross income" under the Internal Revenue Code. As soon as this problem emerged after the imposition of the first income tax authorized by the Sixteenth Amendment, it became evident that its inherent difficulties and subtleties would not easily yield to the formulation of a general rule or test sufficiently definite to confine within narrow limits the area of judgment in applying it. While, at its core, the tax conception of a gift no doubt reflected the non-legal, non-technical notion of a benefaction unentangled with any aspect of worldly requital, the divers blends of personal and pecuniary relationships in our industrial society inevitably presented niceties for adjudication which could not be put to rest by any kind of general formulation.
Despite acute arguments at the bar and a most thorough reexamination of the problem on a full canvass of our prior decisions and an attempted fresh analysis of the nature of the problem, the Court has rejected the invitation of the Government to fashion anything like a litmus paper test for determining what is excludable as a "gift" from gross income. Nor has the Court attempted a clarification of the particular aspects of the problem presented by these two cases, namely, payment by an employer to an employee upon the termination of the employment relation and nonobligatory payment for services rendered in the course of a business relationship. While I agree that experience has shown the futility of attempting to define, by language so circumscribing as to make it easily applicable, what constitutes a gift for every situation where the problem may arise, I do think that greater explicitness is possible in isolating and emphasizing factors which militate against a gift in particular situations.
"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 application of old phrases, rather than to float new ones, and thereby inevitably produce a new volume of exegesis on the new phrases.
Especially do I believe this when factfinding tribunals are directed by the Court to rely upon their "experience with the mainsprings of human conduct" and on their "informed experience with human affairs" in appraising the totality of the facts of each case. Varying conceptions regarding the "mainsprings of human conduct" are derived from a variety of experiences or assumptions about the nature of man, and "experience with human affairs," is not only diverse, but also often drastically conflicting. What the Court now does sets factfinding bodies to sail on an illimitable ocean of individual beliefs and experiences. This can hardly fail to invite, if indeed not encourage, too individualized diversities in the administration of the income tax law. I am afraid that, by these new phrasings, the practicalities of tax administration, which should be as uniform as is possible in so vast a country as ours, will be embarrassed. By applying what has already been spelled out in the opinions of this Court, I agree with the Court in reversing the judgment in Commissioner v. Duberstein.
"in appreciation of the services rendered by Mr. Stanton as Manager of the Estate and Comptroller of the Corporation of Trinity Church throughout nearly ten years, and as President of Trinity Operating Company, Inc."
The force of this document, in light of all the factors to which Judge Hand adverted in his opinion, was not in the least diminished by testimony at the trial. Thus, the taxpayer has totally failed to sustain the burden I would place upon him to establish that the payment to him was wholly attributable to generosity unrelated to his performance of his secular business functions as an officer of the corporation of the Trinity Church of New York and the Trinity Operating Co. Since the record totally fails to establish taxpayer's claim, I see no need of specific findings by the trial judge.

References: § 22
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 22
 § 102
 v. 
 v. 
 v. 
 v. 
 v. 
 § 74
 v. 
 v. 
 v. 
 § 1141
 v. 
 v. 
 v. 
 § 22
 § 102
 v. 
 v.