Commissioner v. Duberstein

Duberstein and Stanton (defendants) were unrelated taxpayers who failed to include as gross income the receipt of what they believed to be gifts. Duberstein was president of Duberstein Iron & Metal Company, which conducted business with Mohawk Metal Corporation (Mohawk). Berman, the president of Mohawk, would occasionally ask Duberstein for the names of people who might be interested in purchasing Mohawk’s products. On one occasion, Duberstein did provide the names of potential customers for Berman. Berman later contacted Duberstein, stating that Duberstein’s tips had proven so valuable that Berman wished to provide him with a car in appreciation. Mohawk later denoted the value of the car as a business expense on its corporate tax return. Believing that the car was a gift, Duberstein did not include the value of the car as gross income on that year’s tax return. The Commissioner found a deficiency in Duberstein’s return in the amount of the car’s value. The Tax Court agreed. The Court of Appeals for the Sixth Circuit reversed. In a separate case, Stanton was an employee of a church for approximately ten years. In 1942, he left the church to begin his own business. Upon his resignation, his employer passed a resolution to grant him a total of $20,000 in appreciation for his services, to be dispensed in monthly installments. The resolution relieved the employers of any obligation to pay Stanton a pension or retirement benefit, although the employer did not have any such obligation at the time. Stanton was not required to perform any further services for the church. He did not report the receipt of the monthly installments on his income tax return for that year. The Commissioner found a deficiency in the amount of the monthly installments. Stanton paid the deficiency but subsequently sued in the United States District Court for the Eastern District of New York for a refund. The District Court found the payments were a gift and ruled in Stanton’s favor. The Court of Appeals for the Second Circuit reversed. The United States government sought review of both cases, requesting clarification of what constitutes a gift. The United States Supreme Court granted certiorari.