Goldsmith v. United States

No. 52-75, 41 A.F.T.R.2d 78-978 (1978)

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Goldsmith v. United States

United States Court of Claims
No. 52-75, 41 A.F.T.R.2d 78-978 (1978)

Facts

Douglas Goldsmith (plaintiff) was an anesthesiologist at an Ohio hospital. In 1969, Goldsmith entered into a deferred-compensation agreement with the hospital, under which the hospital agreed to provide Goldsmith with retirement benefits beginning in 1996 if Goldsmith still worked for the hospital at that time. The agreement also provided that (1) Goldsmith’s children would receive a death benefit if Goldsmith died while he was still working for the hospital, and (2) Goldsmith would continue to receive benefits under the agreement if he became permanently disabled before age 60. The agreement provided that the hospital reserved the right to fund its obligations under the agreement (e.g., with life-insurance or annuity contracts) or to refrain from funding its obligations. Despite that language, Goldsmith and the hospital had agreed that the agreement would be funded by the hospital’s purchase of a life-insurance endowment policy for Goldsmith, with a $450 monthly premium. The hospital and Goldsmith applied for the policy the day after they signed the agreement, and the $450 premium payments were withheld from Goldsmith’s regular monthly compensation from the hospital. The Commissioner of Internal Revenue ruled that the withheld amounts were includible in Goldsmith’s income and assessed income taxes accordingly. Goldsmith paid the taxes and then sued the United States (defendant) for a refund in the United States Court of Claims. The government contended that including the withheld amounts in Goldsmith’s income was appropriate because (1) Goldsmith was in constructive receipt of the funds, and (2) the value of the hospital’s promises to Goldsmith was taxable under the economic-benefit doctrine.

Rule of Law

Issue

Holding and Reasoning (Schwartz, J.)

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