Commissioner v. Duberstein

363 U.S. 278 (1960)

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Nature of the Case

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Facts

Duberstein (P) was president of the Duberstein Iron & Metal Company. P's company did business with Mohawk Metal Corporation. The president of Mohawk was Berman. Both parties used the telephone to transact business with each other. As usual business people do they traded leads with each other. In 1951, Berman was delighted with such a transaction and told P that he wanted to give P a gift for a lead that had proven very helpful. Berman gave a Cadillac as a gift. After a bit of protesting and embarrassment, P accepted the gift. Mohawk eventually deducted the value of the car as a business expense and reported it on its income tax return. P did not include the value of the car in his gross income as he deemed it to be a gift. The IRS asserted a deficiency for the car's value against P. The tax court affirmed; the record is barren of evidence revealing any intention on the part of the payor to make a gift, and the only justifiable inference is that the car was intended as remuneration for services rendered by P.

In the second case, Stanton (P) had been in the employ of Church under a corporate entity. His salary by the end of his employment amounted to $22,500 per year. P resigned and went into business for himself, and the corporation voted him a $20,000 gratuity payable at $2,000 per month provided that with the discontinuance of his services, P would release the corporation from all rights and claims to pension and retirement benefits not already accrued. The actions of the corporation were explained by a director in that P had really helped them at a difficult time, he was liked by all who met him, and they all wanted to make a gift to P. However there was an undercurrent of acrimony with P and the corporation over the recent termination of the treasurer. The treasurer was given six months severance, but that resolution did not use the term gratuity that was attached to P's severance package. There was undisputed testimony that there were no enforceable claims to pension or retirement benefits and that those provisos were inserted only out of caution. The IRS asserted a deficiency against P for failure to include the payments in his income. P paid and then sued for a refund. The trial judge determined that the payments were gifts and judgment was entered for P. These appeals resulted.