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. 61.
        • 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 claimed it).
      • 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 gain).
  • 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.