Historic Tax Case | Commissioner v. Duberstein

• Published date: 23 September 2022
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax
• Law Firm: Freeman Law
• Author: Freeman Law

Short Summary:

The case before the Supreme Court deals with two separate cases: Duberstein and Stanton.

Duberstein: Taxpayer Duberstein was president of the Duberstein Iron & Metal Company and for many years, engaged in business with Mohawk Metal Corporation (Mohawk) of which Berman was the president. Periodically, Berman would ask Duberstein whether Duberstein knew of other customers that may be interested in Mohawk's products; Duberstein provided Berman with the information of potential clients. In 1951, Berman phoned Duberstein to tell him that the potential client information Duberstein provided led to great success and that Berman would like to give Duberstein a present - a Cadillac. Duberstein reluctantly accepted the car from Berman. Understanding the car to be a gift, Duberstein did not include the value of the Cadillac in his gross income for 1951; Mohawk deducted the value of the Cadillac as a business expense on its corporate income tax return.

The Commissioner cited a deficiency worth the Cadillac's value against Duberstein. Upon review by the Tax Court, the deficiency was affirmed. The Court of Appeals for the Sixth Circuit reversed the Tax Court's decision.

Stanton: For approximately ten years, taxpayer Stanton was employed by Trinity Church in New York as comptroller of the Church corporation and president of Trinity Operating Company, a wholly owned subsidiary of the Church that managed the Church's real estate holdings. Effective November 30, 1942, Stanton resigned from both positions. Upon his resignation, the directors of Trinity Operating Company passed a resolution that provided for a gratuity of $20,000 to be paid to Stanton in monthly payments of $2,000 each, in appreciation for his service to the Church. The gratuity was paid to Stanton, and understanding it to be a gift, Stanton did not include the monthly payments in his gross income.

The Commissioner cited a deficiency worth the gratuity against Stanton. After Stanton paid the deficiency, his refund claim was administratively rejected. Stanton filed suit against the U.S. seeking a refund in the District Court for the Eastern District of New York. The trial judge found in favor of Stanton, merely concluding, without explanation, that the transfer was a gift. The Court of Appeals for the Second Circuit reversed the District Court's decision.

The Supreme Court granted the Government's petition for certiorari due to the important nature of the question in successful administration of...