Cesarini v. United States
296 F.Supp. 3 aff'd 428 F.2d 812 (8th Cir. 1970)
The Cesarinis bought a used
piano for $15. Seven years later, they were cleaning the piano and found
$4,467 that some unknown person had hidden there.
The money was legally theirs
based on the treasure trove
concept from Property Law.
The Cesarinis initially
reported the $4k as income and paid taxes on it, but then changed their
mind and filed an amended return requesting a refund.
The IRS rejected the
Cesarinis' claim. The Cesarinis appealed.
The Cesarinis argued that:
The $4k was not gross
income as defined by 26 U.S.C.
The US Supreme Court had
previously ruled that "income
is the return to labor, capital, or both combined," and Cesarini
argued that there was no labor or capital involved in finding the
money. (in Eisner v. Macomber (252 U.S. 189 (1920))).
Even if it did count at gross
income, because the piano was
acquired 7 years before, the Statute of Limitations (26 U.S.C. §6501)
had run out.
Even if it was reportable,
it should be considered capital gains under 26 U.S.C. §1221.
The IRS had a revenue
ruling that said, "the finder of
a treasure trove is in receipt of taxable income, for Federal income tax
purposes, to the extent of its value in United States currency, for the
taxable year in which it is reduced to undisputed possession."
(Rev.Rul. 61, 1953-1 Cum.Bull. 17).
The Appellate Court affirmed.
The Appellate Court agreed
with the revenue ruling that a treasure
trove is taxable income.
The Court found that all increases of wealth unless otherwise
indicated. And nothing is excluded unless specifically authorized.
The Court also looked to §61, which specifies that, "gross income
means all income from whatever source derived..." That includes
finding it in a piano.
The Court found that the
money should be considered income in the year that it was found, not the
year that the piano was purchased.
Based on old English
common-law, the Cesarinis didn't own the money until they found it
(until that time the original owner could have stepped forward and
A "treasure trove, to the extent of its value in United States
currency, constitutes gross income for the taxable year in which it is
reduced to undisputed income."
The Court found that the $4k
should not be considered capital gains because that is only for the "sale or exchange of a capital
asset held for more than 6 months." Neither the piano nor the
currency were sold or exchanged, so the Cesarinis are not entitled to
capital gains treatment.
Note that if the $15 piano
turned out to be a valuable antique worth $4467, Cesarini would not have received an income, and would not be obligated to pay taxes on the
actual value of the piano (until it is sold, then it is a capital
This case is notable because
it extended the concept of gross income to include treasure troves and requires that taxpayers list the income in the year in which
it is found.