Estate of Carter v. Commissioner
453 F.2d 61 (1971)

  • Sometimes, when an employee dies, a company will give a monetary gift to a widow.
    • Technically, since the widow wouldn't have received the gift 'but for' her husband's work, it should be not be considered a gift.
      • Gifts are covered by 26 U.S.C. 102.
      • See Commissioner v. Duberstein (363 U.S. 278 (1960)).
    • However, courts are sympathetic to widows and tend to consider the income to be a gift.
      • Only the Second Circuit had consistently found the money to not be a gift.
  • Carter (who lived in the Second Circuit) died, and his company made a large payment to his widow.
    • They even mentioned that they were making the payment for Carter's service.
  • The IRS claimed that the money was not a gift, but was instead payment for services made by Carter. Therefore it was taxable as gross income.
  • The Tax Court found for the IRS.
    • The Tax Court (despite they were a national court), found that they would apply the precedent of the district the taxpayer was located in. Therefore, they found that the money was not a gift.
  • The Appellate Court reversed.
    • The Appellate Court noted that if Carter's widow had lived outside the Second Circuit, the money would be considered to be a gift, and not taxable.
    • The Court found that it was unfair to tax those in the Second Circuit when they wouldn't be taxed anywhere, so they reversed precedent and found that money paid by companies to employee's widows is a gift, and not taxable.