Court Opinion

ID: 9428817
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:24:53.057601+00
Date Added: 2024-06-11T17:23:14.179720
License: Public Domain

Justice Rehnquist,
dissenting.
It is a well-settled principle today that a taxpayer realizes income when another person relieves the taxpayer of a legal obligation in connection with an otherwise taxable transaction. See Crane v. Commissioner, 381 U. S. 1 (1947) (sale of real property); Old Colony Trust Co. v. Commissioner, 279 U. S. 716 (1929) (employment compensation). In neither Old Colony nor Crane was there any question as to the existence of a taxable transaction; the only question concerned the amount of income realized by the taxpayer as a result of the taxable transaction. The Court in this case, however, begs the question of whether a taxable transaction has taken place at all when it concludes that "[t]he principles of Old Colony and Crane control” this case. Ante, at 196.
In Old Colony, the employer agreed to pay the employee’s federal tax liability as part of his compensation. The employee provided his services to the employer in exchange for compensation. The exchange of compensation for services was undeniably a taxable transaction. The only question was whether the employee’s taxable income included the employer’s assumption of the employee’s income tax liability.
In Crane, the taxpayer sold real property for cash plus the buyer’s assumption of a mortgage. Clearly a sale had occurred, and the only question was whether the amount of the *201mortgage assumed by the buyer should be included in the amount realized by the taxpayer. The Court rejected the taxpayer’s contention that what she sold was not the property itself,, but her equity in that property.
Unlike Old Colony or Crane, the question in this case is not the amount of income the taxpayer has realized as a result of a concededly taxable transation, but whether a taxable transaction has taken place at all. Only after one concludes that a partial sale occurs when the donee agrees to pay the gift tax do Old Colony and Crane become relevant in ascertaining the amount of income realized by the donor as a result of the transaction. Nowhere does the Court explain why a gift becomes a partial sale merely because the donor and donee structure the gift so that the gift tax imposed by Congress on the transaction is paid by the donee rather than the donor.
In my view, the resolution of this case turns upon congressional intent: whether Congress intended to characterize a gift as a partial sale whenever the donee agrees to pay the gift tax. Congress has determined that a gift should not be considered income to the donee. 26 U. S. C. §102. Instead, gift transactions are to be subject to a tax system wholly separate and distinct from the income tax. See 26 U. S. C. § 2501 et seq. Both the donor and the donee may be held liable for the ¿ft tax. §§ 2502(d), 6324(b). Although the primary liability for the gift tax is on the donor, the donee is liable to the extent of the value of the gift should the donor fail to pay the tax. I see no evidence in the tax statutes that Congress forbade the parties to agree among themselves as to who would pay the gift tax upon pain of such an agreement being considered a taxable event for the purposes of the income tax. Although Congress could certainly determine that the payment of the gift tax by the donee constitutes income to the donor, the relevant statutes do not affirmatively indicate that Congress has made such a determination.
I dissent.