Reynolds v. Commissioner

Violet Reynolds (plaintiff) was in a long-term nonmarital relationship with Gregg P. Kent. Kent worked to provide for the couple, and Reynolds took care of their house, acted as hostess when they entertained guests, and cared for Kent when he was sick. Over the course of the 25-year relationship, Kent bought a house and boat for the couple, gave Reynolds a car, and provided Reynolds with a weekly allowance for personal and household use. In 1991 the couple broke up, and Kent filed a lawsuit against Reynolds to get Reynolds to move out of their house and return the car that Kent gave her. Eventually, Kent and Reynolds settled the lawsuit. As part of the settlement, Kent agreed to pay Reynolds approximately $60,000, provide Reynolds with monthly maintenance payments for five years, and transferred title to the car, clothing, jewelry, and household furniture to Reynolds. In 1994 Kent paid $22,000 to Reynolds. Reynolds did not report the money as income on her annual income-tax return because she viewed the money as a gift. The Commissioner of Internal Revenue (the Commissioner) (defendant) determined that Reynolds should have included the settlement payments in her gross income. The Commissioner reasoned that the payments were essentially compensation that Kent gave to Reynolds in exchange for Reynolds’s past services that she provided to him by taking care of their household. Reynolds petitioned the United States Tax Court for a redetermination.