Commissioner v. Duberstein
363 U.S. 278 (1960)

  • Duberstein ran the Duberstein Iron & Metal Company. He often gave business tips to a guy named Berman who ran a similar company. Berman made money from the tips, and was so grateful he gave Duberstein a brand new car as a present.
    • Berman's company deducted the cost of the car as a business expense, but Duberstein did not include the value of the car in his gross income.
  • The IRS claimed that Duberstein was required to include the value of the car as gross income. Duberstein objected.
      • Duberstein considered the car to be a gift (see 26 U.S.C. 102(a)).
  • The Tax Court found for the IRS. Duberstein appealed.
  • The Appellate Court reversed. The IRS appealed.
    • The IRS argued that the car was obviously intended by Berman to be payment for the business advice Duberstein gave him.
    • Duberstein argued that Berman was under no legal obligation to provide the car, therefore it must be a gift.
  • In a separate case, Stanton was working for the Trinity Church. He resigned, and in appreciation for his years of years of service (or maybe just to get rid of him and keep him quiet), the Church gave Stanton $20k.
  • The IRS claimed that Stanton needed to include the $20k in his gross income. Stanton objected.
    • Stanton considered the $20k to be a gift.
  • The Trial Court found for Stanton. The IRS appealed.
    • The IRS argued that the $20k was payment for Stanton's services.
    • Stanton argued that the Church was under no legal obligation to provide the $20k, therefore it must be a gift.
  • The Appellate Court reversed. Stanton appealed.
  • The US Supreme Court combined both cases.
  • The US Supreme Court found against Duberstein, but remanded as to Stanton.
    • The US Supreme Court found that Duberstein's car was not a gift because it was given to him either as compensation for the customer references he gave to Berman or to encourage Duberstein to give more references in the future.
    • The Court remanded on Stanton to ask the question whether the $20k was really a gift, or was a payout in order to encourage Stanton to resign. If it was, then it is compensation, not a gift.
  • The basic rule illustrated in this case is that in order to be considered a gift, the item must be given with no expectation of getting something in return, or in response to receiving something of value.
    • Gifts are the result of "detached and disinterested generosity", while payments are given as an "involved and intensely interested" act.
    • In other words, it is the intention of the transferor that is controlling as to whether a transfer is a gift.
      • That's a question of fact for a jury to decide.
    • The court rejected IRS's suggestion to establish the presumption that if there is an economic relationship between the person who gives the gift and the recipient, then the transfer of property is attributable to the economic relationship, even though there is a personal relationship as well.