Commissioner v. Giannini
129 F.2d 638 (9th Cir. 1942)
Giannini was president of a
bank called Bancitaly. He worked for the bank for six years without any
compensation. Eventually, the Board authorized a committee to pay him
The committee eventually
settled on offering to pay Giannini 5% of the bank's profits. That
turned out to be a stunningly large amount of money.
Giannini took about $445k in
payment, but when the bank offered more he told them that he wouldn't
accept it and that they should do something worthwhile with the money
instead. The bank made a donation for $1.3M to the University of
California in Giannini's name.
When Giannini filed his taxes,
he did not include the $1.3M donated in his name in his gross income. The IRS disagreed.
The IRS argued that the
$1.3M was essentially given to Giannini and then given by him to the
school, so he should be liable to pay taxes on it as income (and then maybe deduct some of it as a charitable
In other words, Giannini realized the income when he directed the disposition
of it. It didn't matter that he waived his rights to the property once
it was offered, he still 'received' it for tax purposes.
Giannini argued that he
never accepted the $1.3M, so he shouldn't be liable to pay taxes on it.
Giannini argued that,
"a person has the right to refuse property proffered to him, and if
he does so, absolutely and unconditionally, his refusal amounts to a
renunciation of the proffered property...Property which is renounced cannot
be diverted or assigned by the renouncer, and cannot be taxed upon the
theory it was received."
The Tax Court found for
Giannini. The IRS appealed.
The Appellate Court affirmed.
The Appellate Court found
that Giannini did not direct the money to the school, all he did was
refuse to accept it. As far as Giannini was concerned, the bank could
have kept the money.
The Court found that since
Giannini never had control over what happened to the money, he could not
be said to have realized it for
Basically, if Giannini had
said, "Don't give the money to me, give it to Berkeley instead,"
then he would have assigned his
interest and the money would be taxable to him. But he didn't do that, he
did not have any control over what happened to the money. A renunciation
does not equal an assignment of interest.