Commissioner v. Duberstein

Brief Fact Summary. Taxpayer Duberstein received a Cadillac from a long-time business acquaintance. At issue was whether the Cadillac was truly a gift or a payment in exchange for business information. Taxpayer Stanton received a large amount of money as a gratuity after he resigned his employment of 10 years with a church.

Synopsis of Rule of Law. The value of property acquired by gift is excluded from gross income.

Facts. Duberstein, Taxpayer, was president of the Duberstein Iron & Metal Company. He did business with Mohawk Metal Corporation. Berman was the president of Mohawk and the two knew each other for seven years. Taxpayer often provided Berman with information on potential customers. Berman gave Taxpayer a Cadillac in exchange for the information. Taxpayer did not want to accept the car because he had no expectation for giving the information to Berman., but upon Berman’s insistence he accepted the car. Taxpayer testified that he did not think Berman would have sent him the Cadillac except for the customer information. Mohawk deducted the Cadillac as a business expense on its corporate income tax return. Taxpayer did not include the value of the Cadillac in his gross income for 1951. The Commissioner of Internal Revenue asserted a deficiency and the Tax Court affirmed.
The text also discusses the case of Stanton v. United States. Stanton, Taxpayer, was employed by Trinity Church for 10 years. He resigned to go into business for himself and received a “gratuity” of $20,000. Taxpayer failed to include this amount as gross income and a deficiency was asserted. Testimony showed that the amount could have been a gift for the years of service. However, other evidence suggested the amount may have been part of a severance package in return for his resignation.

Issue. Was the Cadillac a gift excludable from gross income?
Was the gratuity a gift excludable from gross income?

Held. Justice Brennan issued the opinion for the Supreme Court of the United States in holding that in Duberstein it was not error to consider the Cadillac as income and not a gift.
In Stanton, the Supreme Court found that the facts are not sufficient to make a determination and vacated the judgment and remanded for further proceedings.

Dissent. Opinions of Justices Harlan, Whittaker, Douglass, and Black are omitted from the text.
Justice Frankfurter issued a dissenting opinion on Stanton arguing that the Supreme Court only made the issue more confusing with its opinion. He believes previous cases already spelled out what should be considered by the courts.

Concurrence. Justice Frankfurter concurred in the judgment in Duberstein.

Discussion. The Supreme Court determined that the courts must take into consideration the intention of the one transferring the property. Ultimately, whether or not an item is a gift is a question of fact for the trier of fact. Further, appellate courts should not overturn a trier of fact’s determination unless it is clearly erroneous.