Duberstein ran the Duberstein Iron
& Metal Company. He often gave business tips to a guy named Berman
who ran a similar company. Berman made money from the tips, and was so
grateful he gave Duberstein a brand new car as a present.
Berman's company deducted
the cost of the car as a business expense, but Duberstein did not include the value of the car in his gross
income.
The IRS claimed that
Duberstein was required to include the value of the car as gross income. Duberstein objected.
Duberstein considered the
car to be a gift (see 26 U.S.C.
§102(a)).
The Tax Court found for the
IRS. Duberstein appealed.
The Appellate Court reversed.
The IRS appealed.
The IRS argued that the car
was obviously intended by Berman to be payment for the business advice
Duberstein gave him.
Duberstein argued that
Berman was under no legal obligation to provide the car, therefore it
must be a gift.
In a separate case, Stanton
was working for the Trinity Church. He resigned, and in appreciation for
his years of years of service (or maybe just to get rid of him and keep
him quiet), the Church gave Stanton $20k.
The IRS claimed that Stanton
needed to include the $20k in his gross income. Stanton objected.
Stanton considered the $20k
to be a gift.
The Trial Court found for
Stanton. The IRS appealed.
The IRS argued that the $20k
was payment for Stanton's services.
Stanton argued that the
Church was under no legal obligation to provide the $20k, therefore it
must be a gift.
The Appellate Court reversed.
Stanton appealed.
The US Supreme Court combined
both cases.
The US Supreme Court found
against Duberstein, but remanded as to Stanton.
The US Supreme Court found
that Duberstein's car was not a gift
because it was given to him either as compensation for the customer
references he gave to Berman or to encourage Duberstein to give more
references in the future.
The Court remanded on
Stanton to ask the question whether the $20k was really a gift, or was a payout in order to encourage Stanton
to resign. If it was, then it is compensation, not a gift.
The basic rule illustrated in
this case is that in order to be considered a gift, the item must be given with no expectation of
getting something in return, or in response to receiving something of
value.
Gifts are the result of
"detached and disinterested generosity", while payments are
given as an "involved and intensely interested" act.
In other words, it is the intention of the transferor that is controlling as to
whether a transfer is a gift.
That's a question of fact
for a jury to decide.
The court rejected IRS's
suggestion to establish the presumption that if there is an economic
relationship between the person who gives the gift and the recipient,
then the transfer of property is attributable to the economic
relationship, even though there is a personal relationship as well.
