U.S.
Supreme Court
Commissioner v. Duberstein, 363 U.S. 278 (1960)
Commissioner v. Duberstein
No. 376
Argued March 23, 1960
Decided June 13, 1960*
363 U.S. 278
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Syllabus
1. This Court rejects the Government's suggestion that it promulgate a
new "test" to serve as a standard to be applied by the lower courts and
by the Tax Court in dealing with numerous cases involving the question
what is a "gift" excludable from income under the Internal Revenue
Code, since the governing principles are necessarily general, and have
already been spelled out in the opinions of this Court. Pp. 363 U. S. 284-
286.
2. The conclusion whether a transfer amounts to a "gift" is one that must
be reached on consideration of all the factors. While the principles urged
by the Government may, in nonabsolute form as crystallizations of
experience, prove persuasive to the trier of facts in a particular case,
they cannot be laid down as a matter of law. Pp. 363 U. S. 287-289.
3. Determination in each individual case as to whether the transaction in
question was a "gift" must be based ultimately on the application of the
factfinding tribunal's experience with the mainsprings of human conduct
to the totality of the facts in the case, and appellate review of the
conclusion reached by the fact-finding tribunal must be quite restricted.
Pp. 363 U. S. 289-291.
4. In No. 376, Duberstein, an individual taxpayer, gave to a business
corporation, upon request, the names of potential customers. The
information proved valuable, and the corporation reciprocated by giving
Duberstein a Cadillac automobile, charging the cost thereof as a
business expense on its own corporate income tax return. The Tax Court
concluded that the car was not a "gift" excludable from income under §
22(b)(3) of the Internal Revenue Code of 1939.
Held: on the record in this case, it cannot be said
Page 363 U. S. 279
that the Tax Court's conclusion was "clearly erroneous," and the Court of
Appeals erred in reversing its judgment. Pp. 363 U. S. 279-281, 363 U.
S. 291-292.
5. In No. 546, Stanton, upon resigning as comptroller of a church
corporation and as president of its wholly owned subsidiary created to
manage its extensive real estate holdings, was given "a gratuity" of
$20,000 "in appreciation of" his past services. The Commissioner
assessed an income tax deficiency against him for failure to include this
amount in his gross income. Stanton paid the deficiency and sued in a
Federal District Court for a refund. The trial judge, sitting without a jury,
made the simple finding that the payment was a "gift," and entered
judgment for Stanton. The Court of Appeals reversed.
Held: the finding of the District Court was inadequate; the judgment of
the Court of Appeals is vacated, and the case is remanded to the District
Court for further proceedings. Pp. 363 U. S. 281-283, 363 U. S. 292-293.
265 F.2d 28 reversed.
268 F.2d 727, judgment vacated and cause remanded.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
These two cases concern the provision of the Internal Revenue Code
which excludes from the gross income of an income taxpayer "the value
of property acquired by
Page 363 U. S. 280
gift." [Footnote 1] They pose the frequently recurrent question whether a
specific transfer to a taxpayer in fact amounted to a "gift" to him within
the meaning of the statute. The importance to decision of the facts of the
cases requires that we state them in some detail.
No. 376, Commissioner v. Duberstein. The taxpayer, Duberstein,
[Footnote 2] was president of the Duberstein Iron & Metal Company, a
corporation with headquarters in Dayton, Ohio. For some years, the
taxpayer's company had done business with Mohawk Metal Corporation,
whose headquarters were in New York City. The president of Mohawk
was one Berman. The taxpayer and Berman had generally used the
telephone to transact their companies' business with each other, which
consisted of buying and selling metals. The taxpayer testified, without
elaboration, that he knew Berman "personally," and had known him for
about seven years. From time to time in their telephone conversations,
Berman would ask Duberstein whether the latter knew of potential
customers for some of Mohawk's products in which Duberstein's
company itself was not interested. Duberstein provided the names of
potential customers for these items.
One day in 1951, Berman telephoned Duberstein and said that the
information Duberstein had given him had proved so helpful that he
wanted to give the latter a present. Duberstein stated that Berman owed
him nothing. Berman said that he had a Cadillac as a gift for Duberstein,
and that the latter should send to New York for it; Berman insisted that
Duberstein accept the car, and the latter finally did so, protesting,
however, that
Page 363 U. S. 281
he had not intended to be compensated for the information. At the time,
Duberstein already had a Cadillac and an Oldsmobile, and felt that he did
not need another car. Duberstein testified that he did not think Berman
would have sent him the Cadillac if he had not furnished him with
information about the customers. It appeared that Mohawk later
deducted the value of the Cadillac as a business expense on its
corporate income tax return.
Duberstein did not include the value of the Cadillac in gross income for
1951, deeming it a gift. The Commissioner asserted a deficiency for the
car's value against him, and, in proceedings to review the deficiency, the
Tax Court affirmed the Commissioner's determination. It said that
"The record is significantly barren of evidence revealing any intention on
the part of the payor to make a gift. . . . The only justifiable inference is
that the automobile was intended by the payor to be remuneration for
services rendered to it by Duberstein."
The Court of Appeals for the Sixth Circuit reversed. 265 F.2d 28, 30.
No. 546, Stanton v. United States. The taxpayer, Stanton, had been for
approximately 10 years in the employ of Trinity Church in New York City.
He was comptroller of the Church corporation, and president of a
corporation, Trinity Operating Company, the church set up as a fully
owned subsidiary to manage its real estate holdings, which were more
extensive than simply the church property. His salary by the end of his
employment there in 1942 amounted to $22,500 a year. Effective
November 30, 1942, he resigned from both positions to go into business
for himself. The Operating Company's directors, who seem to have
included the rector and vestrymen of the church, passed the following
resolution upon his resignation:
"Be it resolved that, in appreciation of the services rendered by Mr.
Stanton . . . , a gratuity is hereby awarded to him of Twenty Thousand
Dollars, payable to him in equal instalments of Two Thousand Dollars
Page 363 U. S. 282
at the end of each and every month commencing with the month of
December, 1942; provided that, with the discontinuance of his services,
the Corporation of Trinity Church is released from all rights and claims to
pension and retirement benefits not already accrued up to November 30,
1942."
The Operating Company's action was later explained by one of its
directors as based on the fact that
"Mr. Stanton was liked by all of the Vestry personally. He had a pleasing
personality. He had come in when Trinity's affairs were in a difficult
situation. He did a splendid piece of work, we felt. Besides that . . . , he
was liked by all of the members of the Vestry personally."
And by another:
"[W]e were all unanimous in wishing to make Mr. Stanton a gift. Mr.
Stanton had loyally and faithfully served Trinity in a very difficult time. We
thought of him in the highest regard. We understood that he was going in
business for himself. We felt that he was entitled to that evidence of good
will."
On the other hand, there was a suggestion of some ill feeling between
Stanton and the directors, arising out of the recent termination of the
services of one Watkins, the Operating Company's treasurer, whose
departure was evidently attended by some acrimony. At a special board
meeting on October 28, 1942, Stanton had intervened on Watkins' side
and asked reconsideration of the matter. The minutes reflect that
"resentment was expressed as to the 'presumptuous' suggestion that the
action of the Board, taken after long deliberation, should be changed."
The Board adhered to its determination that Watkins be separated from
employment, giving him an opportunity to resign rather than be
discharged. At another special meeting two days later, it was revealed
that Watkins had not resigned; the previous resolution terminating his
services was then viewed as effective, and the Board voted the payment
of six months' salary
Page 363 U. S. 283
to Watkins in a resolution similar to that quoted in regard to Stanton, but
which did not use the term "gratuity." At the meeting, Stanton announced
that, in order to avoid any such embarrassment or question at any time
as to his willingness to resign if the Board desired, he was tendering his
resignation. It was tabled, though not without dissent. The next week, on
November 5, at another special meeting, Stanton again tendered his
resignation, which this time was accepted.
The "gratuity" was duly paid. So was a smaller one to Stanton's (and the
Operating Company's) secretary, under a similar resolution, upon her
resignation at the same time. The two corporations shared the expense
of the payments. There was undisputed testimony that there were in fact
no enforceable rights or claims to pension and retirement benefits which
had not accrued at the time of the taxpayer's resignation, and that the
last proviso of the resolution was inserted simply out of an abundance of
caution. The taxpayer received in cash a refund of his contributions to
the retirement plans, and there is no suggestion that he was entitled to
more. He was required to perform no further services for Trinity after his
resignation.
The Commissioner asserted a deficiency against the taxpayer after the
latter had failed to include the payments in question in gross income.
After payment of the deficiency and administrative rejection of a refund
claim, the taxpayer sued the United States for a refund in the District
Court for the Eastern District of New York. 137 F.Supp. 803. The trial
judge, sitting without a jury, made the simple finding that the payments
were a "gift," [Footnote 3] and judgment was entered for the taxpayer.
The Court of Appeals for the Second Circuit reversed. 268 F.2d 727.
The Government, urging that clarification of the problem typified by these
two cases was necessary, and that
Page 363 U. S. 284
the approaches taken by the Courts of Appeals for the Second and the
Sixth Circuits were in conflict, petitioned for certiorari in No. 376, and
acquiesced in the taxpayer's petition in No. 546. On this basis, and
because of the importance of the question in the administration of the
income tax laws, we granted certiorari in both cases. 361 U.S. 923.
The exclusion of property acquired by gift from gross income under the
federal income tax laws was made in the first income tax statute
[Footnote 4] passed under the authority of the Sixteenth Amendment,
and has been a feature of the income tax statutes ever since. The
meaning of the term "gift" as applied to particular transfers has always
been a matter of contention. [Footnote 5] Specific and illuminating
legislative history on the point does not appear to exist. Analogies and
inferences drawn from other revenue provisions, such as the estate and
gift taxes, are dubious. See Lockard v. Commissioner, 166 F.2d 409. The
meaning of the statutory term has been shaped largely by the decisional
law. With this, we turn to the contentions made by the Government in
these cases.
First. The Government suggests that we promulgate a new "test" in this
area to serve as a standard to be applied by the lower courts and by the
Tax Court in dealing with the numerous cases that arise. [Footnote 6] We
reject this invitation. We are of opinion that the governing principles are
necessarily general, and have already been spelled out in the opinions of
this Court, and that the problem is one which, under the present statutory
framework, does not lend itself to any more definitive statement
Page 363 U. S. 285
that would produce a talisman for the solution of concrete cases. The
cases at bar are fair examples of the settings in which the problem
usually arises. They present situations in which payments have been
made in a context with business overtones -- an employer making a
payment to a retiring employee; a businessman giving something of
value to another businessman who has been of advantage to him in his
business. In this context, we review the law as established by the prior
cases here.
The course of decision here makes it plain that the statute does not use
the term "gift" in the common law sense, but in a more colloquial sense.
This Court has indicated that a voluntarily executed transfer of his
property by one to another, without any consideration or compensation
therefor, though a common law gift, is not necessarily a "gift" within the
meaning of the statute. For the Court has shown that the mere absence
of a legal or moral obligation to make such a payment does not establish
that it is a gift. Old Colony Trust Co. v. Commissioner, 279 U. S.
716, 279 U. S. 730. And, importantly, if the payment proceeds primarily
from "the constraining force of any moral or legal duty," or from "the
incentive of anticipated benefit" of an economic nature, Bogardus v.
Commissioner, 302 U. S. 34, 302 U. S. 41, it is not a gift. And,
conversely, "[w]here the payment is in return for services rendered, it is
irrelevant that the donor derives no economic benefit from it." Robertson
v. United States, 343 U. S. 711, 343 U. S. 714. [Footnote 7] A gift in the
statutory sense, on the other hand, proceeds from a "detached and
disinterested generosity," Commissioner v. LoBue, 351 U. S. 243, 351 U.
S. 246; "out of affection, respect, admiration, charity or like
impulses." Robertson v. United States, supra, at 343 U. S. 714. And, in a deduction for an ordinary and necessary business expense. As we
this regard, the most critical consideration, as the Court was agreed in have said, we find no basis for such a conclusion in the statute; and if it
the leading case here, is the transferor's "intention." were applied as a determinative rule of "law," it would force the tribunals
trying tax cases involving the donee's liability into elaborate inquiries into
the local law of corporations or into the peripheral deductibility of
Page 363 U. S. 286
payments as business expenses. The former issue might make the tax
tribunals the most frequent investigators of an important and difficult
Bogardus v. Commissioner, 302 U. S. 34, 302 U. S. 43. "What controls is issue of the laws of the several States, and the latter inquiry would
the intention with which payment, however voluntary, has been summon one difficult and delicate problem of federal tax law as an aid to
made." Id. at 302 U. S. 45 (dissenting opinion). [Footnote 8] the solution of another. [Footnote 9] Or perhaps there would be required
a trial of the vexed issue whether there was a "constructive" distribution
of corporate property, for income tax purposes, to the corporate
The Government says that this "intention" of the transferor cannot mean
what the cases on the common law concept of gift call "donative intent."
With that we are in agreement, for our decisions fully support this. Page 363 U. S. 289
Moreover, the Bogardus case itself makes it plain that the donor's
characterization of his action is not determinative -- that there must be an
agents who had sponsored the transfer. [Footnote 10] These
objective inquiry as to whether what is called a gift amounts to it in
considerations, also, reinforce us in our conclusion that, while the
reality. 302 U.S. at 302 U. S. 40. It scarcely needs adding that the
principles urged by the Government may, in nonabsolute form as
parties' expectations or hopes as to the tax treatment of their conduct, in
crystallizations of experience, prove persuasive to the trier of facts in a
themselves, have nothing to do with the matter.
particular case, neither they nor any more detailed statement than has
been made can be laid down as a matter of law.
It is suggested that the Bogardus criterion would be more apt if
rephrased in terms of "motive," rather than "intention." We must confess
Third. Decision of the issue presented in these cases must be based
to some skepticism as to whether such a verbal mutation would be of any
ultimately on the application of the factfinding tribunal's experience with
practical consequence. We take it that the proper criterion, established
the mainsprings of human conduct to the totality of the facts of each
by decision here, is one that inquires what the basic reason for his
case. The nontechnical nature of the statutory standard, the close
conduct was in fact -- the dominant reason that explains his action in
relationship of it to the date of practical human experience, and the
making the transfer. Further than that we do not think it profitable to go.
multiplicity of relevant factual elements, with their various combinations,
creating the necessity of ascribing the proper force to each, confirm us in
Page 363 U. S. 287 our conclusion that primary weight in this area must be given to the
conclusions of the trier of fact. Baker v. Texas & Pacific R. Co., 359 U. S.
227; Commissioner v. Heininger, 320 U. S. 467, 320 U. S. 475; United
Second. The Government's proposed "test," while apparently simple and States v. Yellow Cab Co., 338 U. S. 338, 338 U. S. 341; Bogardus v.
precise in its formulation, depends frankly on a set of "principles" or Commissioner, supra, at 302 U. S. 45 (dissenting opinion). [Footnote 11]
"presumptions" derived from the decided cases, and concededly subject
to various exceptions; and it involves various corollaries, which add to its
detail. Were we to promulgate this test as a matter of law, and accept Page 363 U. S. 290
with it its various presuppositions and stated consequences, we would be
passing for beyond the requirements of the cases before us, and would
This conclusion may not satisfy an academic desire for tidiness,
be painting on a large canvas with indeed a broad brush. The
symmetry, and precision in this area, any more than a system based on
Government derives it test from such propositions as the following: that
the determinations of various factfinders ordinarily does. But we see it as
payments by an employer to an employee, even though voluntary, ought,
implicit in the present statutory treatment of the exclusion for gifts, and in
by and large, to be taxable; that the concept of a gift is inconsistent with
the variety of forums in which federal income tax cases can be tried. If
a payment's being a deductible business expense; that a gift involves
there is fear of undue uncertainty or overmuch litigation, Congress may
"personal" elements; that a business corporation cannot properly make a
make more precise its treatment of the matter by singling out certain
gift of its assets. The Government admits that there are exceptions and
factors and making them determinative of the matters, as it has done in
qualifications to these propositions. We think, to the extent they are
one field of the "gift" exclusion's former application, that of prizes and
correct, that these propositions are not principles of law, but rather
awards. [Footnote 12] Doubtless diversity of result will tend to be
maxims of experience that the tribunals which have tried the facts of
lessened somewhat, since federal income tax decisions, even those in
cases in this area have enunciated in explaining their factual
tribunals of first instance turning on issues of fact, tend to be reported,
determinations. Some of them simply represent truisms: it doubtless is,
and since there may be a natural tendency of professional triers of fact to
statistically speaking, the exceptional payment by an employer to an
follow one another's determinations, even as to factual matters. But the
employee that amounts to a gift. Others are overstatements of possible
question here remains basically one of fact, for determination on a case-
evidentiary inferences relevant to a factual determination on the totality of
by-case basis.
circumstances in the case: it is doubtless relevant to the over-all
inference that the transferor treats a payment as a business deduction,
or that the transferor is a corporate entity. But these inferences cannot be One consequence of this is that appellate review of determinations in this
stated in absolute terms. Neither factor is a shibboleth. The taxing statute field must be quite restricted. Where a jury has tried the matter upon
does not make nondeductibility by the transferor a condition on the "gift" correct instructions,
exclusion; nor does it draw and distinction, in terms, between transfers
by corporations
Page 363 U. S. 291

Page 363 U. S. 288

and individuals, as to the availability of the "gift" exclusion to the
transferee. The conclusion whether a transfer amounts to a "gift" is one
that must be reached on consideration of all the factors.
the only inquiry is whether it cannot be said that reasonable men could
reach differing conclusions on the issue. Baker v. Texas & Pacific R. Co.,
supra, at 359 U. S. 228. Where the trial has been by a judge without a
jury, the judge's findings must stand unless "clearly erroneous."
Fed.Rules Civ.Proc. 52(a).

Specifically, the trier of fact must be careful not to allow trial of the issue
whether the receipt of a specific payment is a gift to turn into a trial of the
tax liability, or of the propriety, as a matter of fiduciary or corporate law,
attaching to the conduct of someone else. The major corollary to the
Government's suggested "test" is that, as an ordinary matter, a payment
by a corporation cannot be a gift, and, more specifically, there can be no
such thing as a "gift" made by a corporation which would allow it to take
"A finding is 'clearly erroneous' when, although there is evidence to
support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed."
United States v. United States Gypsum Co., 333 U. S. 364, 333 U. S.
395. The rule itself applies also to factual inferences from undisputed
basic facts, id. at 333 U. S. 394, as will on many occasions be presented
in this area. Cf. Graver Tank & Mfg. Co. v. Linde Air Products Co., 339 U. the United States Court of Appeals for the Second Circuit, argued March
S. 605, 339 U. S. 609-610. And Congress has, in the most explicit terms, 24, 1960.
attached the identical weight to the findings of the Tax Court. I.R.C. §
7482(a). [Footnote 13]
[Footnote 1]

Fourth. A majority of the Court is in accord with the principles just

The operative provision in the cases at bar is § 22(b)(3) of the 1939
outlined. And, applying them to the Duberstein case, we are in
Internal Revenue Code. The corresponding provision of the present
agreement, on the evidence we have set forth, that it cannot be said that
Code is § 102(a).
the conclusion of the Tax Court was "clearly erroneous." It seems to us
plain that, as trier of the facts, it was warranted in concluding that,
despite the characterization of the transfer of the Cadillac by the parties, [Footnote 2]
and the absence of any obligation, even of a moral nature, to make it, it
was,
In both cases, the husband will be referred to as the taxpayer, although
his wife joined with him in joint tax returns.
Page 363 U. S. 292
[Footnote 3]
at bottom, a recompense for Duberstein's past services, or an
inducement for him to be of further service in the future. We cannot say
See note 14 infra.
with the Court of Appeals that such a conclusion was "mere suspicion"
on the Tax Court's part. To us, it appears based in the sort of informed
experience with human affairs that factfinding tribunals should bring to [Footnote 4]
this task.
§ II.B., c. 16, 38 Stat. 167.
As to Stanton, we are in disagreement. To four of us, it is critical here
that the District Court as trier of fact made only the simple and
unelaborated finding that the transfer in question was a "gift." [Footnote [Footnote 5]
14] To be sure, conciseness is to be strived for, and prolixity avoided, in
findings; but, to the four of us, there comes a point where findings The first case of the Board of Tax Appeals officially reported in fact deals
become so sparse and conclusory as to give to revelation of what the with the problem. Parrott v. Commissioner, 1 B.T.A. 1.
District Court's concept of the determining facts and legal standard may
be. See Matton Oil Transfer Corp. v. The Dynamic, 123 F.2d 999, 1000-
1001. Such conclusory, general findings do not constitute compliance [Footnote 6]
with Rule 52's direction to "find the facts specially and state separately . .
. conclusions of law thereon." While the standard of law in this area is not The Government's proposed test is stated: "Gifts should be defined as
a complex one, we four think the unelaborated finding of ultimate fact transfers of property made for personal, as distinguished from business,
here cannot stand as a fulfillment of these requirements. It affords the reasons."
reviewing court not the semblance of an indication of the legal standard
with which the trier of fact has approached his task. For all that appears,
the District [Footnote 7]

Page 363 U. S. 293 The cases including "tips" in gross income are classic examples of
this. See, e.g., Roberts v. Commissioner, 176 F.2d 221.

Court may have viewed the form of the resolution or the simple absence
of legal consideration as conclusive. While the judgment of the Court of
Appeals cannot stand, the four of us think there must be further
proceedings in the District Court looking toward new and adequate
findings of fact. In this, we are joined by MR. JUSTICE WHITTAKER,
who agrees that the findings were inadequate, although he does not
concur generally in this opinion.
Accordingly, in No. 376, the judgment of this Court is that the judgment of
the Court of Appeals is reversed, and in No. 546, that the judgment of the
Court of Appeals is vacated, and the case is remanded to the District
Court for further proceedings not inconsistent with this opinion.
It is so ordered.
[Footnote 8]
The parts of the Bogardus opinion which we touch on here are the ones
we take to be basic to its holding, and the ones that we read as stating
those governing principles which it establishes. As to them, we see little
distinction between the views of the Court and those taken in dissent
in Bogardus. The fear expressed by the dissent at 302 U.S. at 302 U. S.
44, that the prevailing opinion "seems" to hold "that every payment which
in any aspect is a gift is . . . relieved of any tax," strikes us now as going
beyond what the opinion of the Court held in fact. In any event, the
Court's opinion in Bogardusdoes not seem to have been so interpreted
afterwards. The principal difference, as we see it, between the Court's
opinion and the dissent lies in the weight to be given the findings of the
trier of fact.

MR. JUSTICE HARLAN concurs in the result in No. 376. In No. 546, he
would affirm the judgment of the Court of Appeals for the reasons stated
by MR. JUSTICE FRANKFURTER.
MR. JUSTICE WHITTAKER, agreeing with Bogardus that whether a
particular transfer is or is not a "gift" may involve "a mixed question of
law and fact," 302 U.S. at 302 U. S. 39, concurs only in the result of this
opinion.
MR. JUSTICE DOUGLAS dissents, since he is of the view that, in each
of these two cases, there was a gift under the test which the Court
fashioned nearly a quarter of a century ago in Bogardus v.
Commissioner, 302 U. S. 34.
[Footnote 9]
Justice Cardozo once described in memorable language the inquiry into
whether an expense was an "ordinary and necessary" one of a business:
"One struggles in vain for any verbal formula that will supply a ready
touchstone. The standard set up by the statute is not a rule of law; it is
rather a way of life. Life in all its fullness must supply the answer to the
riddle."
Welch v. Helvering, 290 U. S. 111, 290 U. S. 115. The same comment
well fits the issue in the cases at bar.

* Together with No. 546, Stanton et ux. v. United States, on certiorari to [Footnote 10]
Cf., e.g., Nelson v. Commissioner, 203 F.2d 1.
[Footnote 11]
In Bogardus, the Court was divided 5 to 4 as to the scope of review to be
extended the factfinder's determination as to a specific receipt, in a
context like that of the instant cases. The majority held that such a
determination was "a conclusion of law, or at least a determination of a
mixed question of law and fact." 302 U.S. at 302 U. S. 39. This
formulation it took as justifying it in assuming a fairly broad standard of
review. The dissent took a contrary view. The approach of this part of the
Court's ruling in Bogardus, which we think was the only part on which
there was real division among the Court, see note 8 supra, has not been
afforded subsequent respect here. In Heininger, a question presenting at
the most elements no more factual and untechnical than those here --
that of the "ordinary and necessary" nature of a business expense -- was
treated as one of fact. Cf. note 9 supra. And in Dobson v.
Commissioner, 320 U. S. 489, 320 U. S. 498, n. 22, Bogardus was
adversely criticized insofar as it treated the matter as reviewable as one
of law. While Dobson is, of course, no longer the law insofar as it ordains
a greater weight to be attached to the findings of the Tax Court than to
those of any other factfinder in a tax litigation, see note 13 infra, we think
its criticism of this point in the Bogardus opinion is sound in view of the
dominant importance of factual inquiry to decision of these cases.
[Footnote 12]
I.R.C. § 74, which is a provision new with the 1954 Code. Previously,
there had been holdings that such receipts as the "Pot O' Gold" radio
giveaway, Washburn v. Commissioner, 5 T.C. 1333, and the Ross Essay
Prize, McDermott v. Commissioner, 80 U.S.App.D.C. 176, 150 F.2d 585,
were "gifts." Congress intended to obviate such rulings. S.Rep. No. 1622,
83d Cong., 2d Sess., p. 178. We imply no approval of those holdings
under the general standard of the "gift" exclusion. Cf. Robertson v.
United States, supra.
[Footnote 13]
"The United States Courts of Appeals shall have exclusive jurisdiction to
review the decisions of the Tax Court . . . in the same manner and to the
same extent as decisions of the district courts in civil actions tried without
a jury. . . ."
The last words first came into the statute through an amendment to §
1141(a) of the 1939 Code in 1948 (§ 36 of the Judicial Code Act, 62 Stat.
991). The purpose of the 1948 legislation was to remove from the law the
favored position (in comparison with District Court and Court of Claims
rulings in tax matters) enjoyed by the Tax Court under this Court's ruling
in Dobson v. Commissioner, 320 U. S. 489. Cf. note 11 supra. See
Grace Bros., Inc. v. Commissioner, 173 F.2d 170, 173.
[Footnote 14]
The "Findings of Fact and Conclusions of Law" were made orally, and
were simply:
"The resolution of the Board of Directors of the Trinity Operating
Company, Incorporated, held November 19, 1942, after the resignations
had been accepted of the plaintiff from his positions as controller of the
corporation of the Trinity Church, and the president of the Trinity
Operating Company, Incorporated, whereby a gratuity was voted to the
plaintiff, Allen [sic] D. Stanton, in the amount of $20,000 payable to him
in monthly installments of $2,000 each, commencing with the month of
December, 1942, constituted a gift to the taxpayer, and therefore need
not have been reported by him as income for the taxable years 1942, or
1943."
MR. JUSTICE BLACK, concurring and dissenting.
I agree with the Court that it was not clearly erroneous for the Tax Court
to find as it did in No. 376 that the automobile transfer to Duberstein was
not a gift, and so
Page 363 U. S. 294
I agree with the Court's opinion and judgment reversing the judgment of
the Court of Appeals in that case.
I dissent in No. 546, Stanton v. United States. The District Court found
that the $20,000 transferred to Mr. Stanton by his former employer at the
end of ten years' service was a gift, and therefore exempt from taxation
under I.R.C. of 1939, § 22(b)(3) (now I.R.C. of 1954, § 102(a)). I think the
finding was not clearly erroneous, and that the Court of Appeals was
therefore wrong in reversing the District Court's judgment. While
conflicting inferences might have been drawn, there was evidence to
show that Mr. Stanton's long services had been satisfactory, that he was
well liked personally and had given splendid service, that the employer
was under no obligation at all to pay any added compensation, but made
the $20,000 payment because prompted by a genuine desire to make
him a "gift," to award him a "gratuity." Cf. Commissioner v. LoBue, 351 U.
S. 243, 351 U. S. 246-247. The District Court's finding was that the
added payment "constituted a gift to the taxpayer, and therefore need not
have been reported by him as income. . . ." The trial court might have
used more words, or discussed the facts set out above in more detail, but
I doubt if this would have made its crucial, adequately supported finding
any clearer. For this reason, I would reinstate the District Court's
judgment for petitioner.
MR. JUSTICE FRANKFURTER, concurring in the judgment in No. 376
and dissenting in No. 546.
As the Court's opinion indicates, we brought these two cases here partly
because of a claimed difference in the approaches between two Courts
of Appeals, but primarily on the Government's urging that, in that interest
of the better administration of the income tax laws, clarification was
desirable for determining when a transfer of property constitutes a "gift"
and is not to be included in
Page 363 U. S. 295
income for purposes of ascertaining the "gross income" under the
Internal Revenue Code. As soon as this problem emerged after the
imposition of the first income tax authorized by the Sixteenth
Amendment, it became evident that its inherent difficulties and subtleties
would not easily yield to the formulation of a general rule or test
sufficiently definite to confine within narrow limits the area of judgment in
applying it. While, at its core, the tax conception of a gift no doubt
reflected the non-legal, non-technical notion of a benefaction
unentangled with any aspect of worldly requital, the divers blends of
personal and pecuniary relationships in our industrial society inevitably
presented niceties for adjudication which could not be put to rest by any
kind of general formulation.
Despite acute arguments at the bar and a most thorough reexamination
of the problem on a full canvass of our prior decisions and an attempted
fresh analysis of the nature of the problem, the Court has rejected the
invitation of the Government to fashion anything like a litmus paper test
for determining what is excludable as a "gift" from gross income. Nor has
the Court attempted a clarification of the particular aspects of the
problem presented by these two cases, namely, payment by an employer
to an employee upon the termination of the employment relation and
nonobligatory payment for services rendered in the course of a business
relationship. While I agree that experience has shown the futility of
attempting to define, by language so circumscribing as to make it easily
applicable, what constitutes a gift for every situation where the problem
may arise, I do think that greater explicitness is possible in isolating and
emphasizing factors which militate against a gift in particular situations.
Thus, regarding the two frequently recurring situations involved in these
cases -- things of value given to employees by their employers upon the
termination of employment
Page 363 U. S. 296
and payments entangled in a business relation and occasioned by the
performance of some service -- the strong implication is that the payment
is of a business nature. The problem in these two cases is entirely the Estate and Comptroller of the Corporation of Trinity Church
different from the problem in a case where a payment is made from one throughout nearly ten years, and as President of Trinity Operating
member of a family to another, where the implications are directly Company, Inc."
otherwise. No single general formulation appropriately deals with both
types of cases, although both involve the question whether the payment
The force of this document, in light of all the factors to which Judge Hand
was a "gift." While we should normally suppose that a payment from
adverted in his opinion, was not in the least diminished by testimony at
father to son was a gift unless the contrary is shown, in the two situations
the trial. Thus, the taxpayer has totally failed to sustain the burden I
now before us, the business implications are so forceful that I would
would place upon him to establish that the payment to him was wholly
apply a presumptive rule placing the burden upon the beneficiary to
attributable to generosity unrelated to his performance of his secular
prove the payment wholly unrelated to his services to the enterprise. The
business functions as an officer of the corporation of the Trinity Church of
Court, however, has declined so to analyze the problem, and has
New York and the Trinity Operating Co. Since the record totally fails to
concluded
establish taxpayer's claim, I see no need of specific findings by the trial
judge.
"that the governing principles are necessarily general, and have already
been spelled out in the opinions of this Court, and that the problem is one
which, under the present statutory framework, does not lend itself to any
more definitive statement that would produce a talisman for the solution
of concrete cases."

The Court has made only one authoritative addition to the previous
course of our decisions. Recognizing Bogardus v. Commissioner, 302 U.
S. 34, as "the leading case here," and finding essential accord between
the Court's opinion and the dissent in that case, the Court has drawn
from the dissent in Bogardus for infusion into what will now be a
controlling qualification, recognition that it is "for the triers of the facts to
seek among competing aims or motives the ones that dominated
conduct." 302 U. S. 302 U.S. 34, 302 U. S. 45 (dissenting opinion). All
this being so in view of the Court, it seems to me desirable not to try to
improve what has "already been spelled out" in the opinions of this Court,
but to leave to the lower courts

Page 363 U. S. 297

the application of old phrases, rather than to float new ones, and thereby
inevitably produce a new volume of exegesis on the new phrases.

Especially do I believe this when factfinding tribunals are directed by the

Court to rely upon their "experience with the mainsprings of human
conduct" and on their "informed experience with human affairs" in
appraising the totality of the facts of each case. Varying conceptions
regarding the "mainsprings of human conduct" are derived from a variety
of experiences or assumptions about the nature of man, and "experience
with human affairs," is not only diverse, but also often drastically
conflicting. What the Court now does sets factfinding bodies to sail on an
illimitable ocean of individual beliefs and experiences. This can hardly fail
to invite, if indeed not encourage, too individualized diversities in the
administration of the income tax law. I am afraid that, by these new
phrasings, the practicalities of tax administration, which should be as
uniform as is possible in so vast a country as ours, will be embarrassed.
By applying what has already been spelled out in the opinions of this
Court, I agree with the Court in reversing the judgment in Commissioner
v. Duberstein.

But I would affirm the decision of the Court of Appeals for the Second
Circuit in Stanton v. United States. I would do so on the basis of the
opinion of Judge Hand, and more particularly because the very terms of
the resolution by which the $20,000 was awarded to Stanton indicated
that it was not a "gratuity" in the sense of sheer benevolence, but in the
nature of a generous lagniappe, something extra thrown in for services
received, though not legally nor morally required to be given. This careful
resolution, doubtless drawn by a lawyer and adopted by some
hardheaded businessmen, contained a proviso that Stanton should
abandon all rights to "pension and retirement benefits." The fact that
Stanton had no such

Page 363 U. S. 298

claims does not lessen the significance of the clause as something "to
make assurance doubly sure." 268 F.2d 728. The business nature of the
payment is confirmed by the words of the resolution, explaining the
"gratuity" as

"in appreciation of the services rendered by Mr. Stanton as Manager of

EN BANC
G.R. No. L-19865             July 31, 1965
MARIA CARLA PIROVANO, etc., et al., petitioners-appellants,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent-appellee.
Angel S. Gamboa for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
REYES, J.B.L., J.:
This case is a sequel to the case of Pirovano vs. De la Rama Steamship
Co., 96 Phil. 335.
Briefly, the facts of the aforestated case may be stated as follows:
Enrico Pirovano was the father of the herein petitioners-appellants.
Sometime in the early part of 1941, De la Rama Steamship Co. insured
the life of said Enrico Pirovano, who was then its President and General
Manager until the time of his death, with various Philippine and American
insurance companies for a total sum of one million pesos, designating
itself as the beneficiary of the policies, obtained by it. Due to the
Japanese occupation of the Philippines during the second World War,
the Company was unable to pay the premiums on the policies issued by
its Philippine insurers and these policies lapsed, while the policies issued
by its American insurers were kept effective and subsisting, the New
York office of the Company having continued paying its premiums from
year to year.
During the Japanese occupation , or more particularly in the latter part of
1944, said Enrico Pirovano died.
After the liberation of the Philippines from the Japanese forces, the
Board of Directors of De la Rama Steamship Co. adopted a resolution
dated July 10, 1946 granting and setting aside, out of the proceeds
expected to be collected on the insurance policies taken on the life of
said Enrico Pirovano, the sum of P400,000.00 for equal division among
the four (4) minor children of the deceased, said sum of money to be
convertible into 4,000 shares of stock of the Company, at par, or 1,000
shares for each child. Shortly thereafter, the Company received the total
sum of P643,000.00 as proceeds of the said life insurance policies
obtained from American insurers.
Upon receipt of the last stated sum of money, the Board of Directors of
the Company modified, on January 6, 1947, the above-mentioned
resolution by renouncing all its rights title, and interest to the said amount
of P643,000.00 in favor of the minor children of the deceased, subject to
the express condition that said amount should be retained by the
Company in the nature of a loan to it, drawing interest at the rate of five
per centum (5%) per annum, and payable to the Pirovano children after
the Company shall have first settled in full the balance of its present
remaining bonded indebtedness in the sum of approximately
P5,000,000.00. This latter resolution was carried out in a Memorandum
Agreement on January 10, 1947 and June 17, 1947., respectively,
executed by the Company and Mrs. Estefania R. Pirovano, the latter
acting in her capacity as guardian of her children (petitioners-appellants
herein) find pursuant to an express authority granted her by the court.
On June 24, 1947, the Board of Directors of the Company further
modified the last mentioned resolution providing therein that the
Company shall pay the proceeds of said life insurance policies to the
heirs of the said Enrico Pirovano after the Company shall have settled in
full the balance of its present remaining bonded indebtedness, but the
annual interests accruing on the principal shall be paid to the heirs of the
said Enrico Pirovano, or their duly appointed representative, whenever
the Company is in a position to meet said obligation.
On February 26, 1948, Mrs. Estefania R. Pirovano, in behalf of her
children, executed a public document formally accepting the donation;
and, on the same date, the Company through its Board of Directors, took
official notice of this formal acceptance.
On September 13, 1949, the stockholders of the Company formally
ratified the various resolutions hereinabove mentioned with certain
clarifying modifications that the payment of the donation shall not be
effected until such time as the Company shall have first duly liquidated its
present bonded indebtedness in the amount of P3,260,855.77 with the
National Development Company, or fully redeemed the preferred shares
of stock in the amount which shall be issued to the National Development
Company in lieu thereof; and that any and all taxes, legal fees, and
expenses in any way connected with the above transaction shall be
chargeable and deducted from the proceeds of the life insurance policies
mentioned in the resolutions of the Board of Directors.
On March 8, 1951, however, the majority stockholders of the Company
voted to revoke the resolution approving the donation in favor of the
Pirovano children.
As a consequence of this revocation and refusal of the Company to pay
the balance of the donation amounting to P564,980.90 despite demands
therefor, the herein petitioners-appellants represented by their natural
guardian, Mrs. Estefania R. Pirovano, brought an action for the recovery
of said amount, plus interest and damages against De la Rama
Steamship Co., in the Court of First Instance of Rizal, which case
ultimately culminated to an appeal to this Court. On December 29, 1954,
this court rendered its decision in the appealed case (96 Phil. 335)
holding that the donation was valid and remunerative in nature, the
dispositive part of which reads:
Wherefore, the decision appealed from should be modified as
follows: (a) that the donation in favor of the children of the late
Enrico Pirovano of the proceeds of the insurance policies
taken on his life is valid and binding on the defendant
corporation; (b) that said donation, which amounts to a total of
P583,813.59, including interest, as it appears in the books of
the corporation as of August 31, 1951, plus interest thereon at
the rate of 5 per cent per annum from the filing of the
complaint, should be paid to the plaintiffs after the defendant
corporation shall have fully redeemed the preferred shares
issued to the National Development Company under the terms
and conditions stared in the resolutions of the Board of
Directors of January 6, 1947 and June 24, 1947, as amended
by the resolution of the stockholders adopted on September
13, 1949; and (c) defendant shall pay to plaintiffs an additional
amount equivalent to 10 per cent of said amount of
P583,813.59 as damages by way of attorney's fees, and to pay
the costs of action. (Pirovano et al. vs. De la Rama Steamship
Co., 96 Phil. 367-368)
The above decision became final and executory. In compliance
therewith, De la Rama Steamship Co. made, on April 6, 1955, a partial
payment on the amount of the judgment and paid the balance thereof on
May 12, 1955.
On March 6, 1955, respondent Commissioner of Internal Revenue
assessed the amount of P60,869.67 as donees' gift tax, inclusive of
surcharges, interests and other penalties, against each of the petitioners-
appellants, or for the total sum of P243,478.68; and, on April 23, 1955, a
donor's gift tax in the total amount of P34,371.76 was also assessed
against De la Rama Steamship Co., which the latter paid.
Petitioners-appellants herein contested respondent Commissioner's
assessment and imposition of the donees' gift taxes and donor's gift tax
and also made a claim for refund of the donor's gift tax so collected.
Respondent Commissioner overruled petitioners' claims; hence, the
latter presented two (2) petitions for review against respondent's rulings
before the Court of Tax Appeals, said petitions having been docketed as
CTA Cases Nos. 347 and 375. CTA Case No. 347 relates to the petition
disputing the legality of the assessment of donees' gift taxes and donor's
gift tax while CTA Case No. 375 refers to the claim for refund of the
donor's gift tax already paid.
After the filing of respondent's usual answers to the petitions, the two
cases, being interrelated to each other, were tried jointly and terminated.
On January 31, 1962, the Court of Tax Appeals rendered its decision in
the two cases, the dispositive part of which reads:
In resume, we are of the opinion, that (1) the donor's gift tax in
the sum of P34,371.76 was erroneously assessed and
collected, hence, petitioners are entitled to the refund thereof;
(2) the donees' gift taxes were correctly assessed; (3) the
imposition of the surcharge of 25% is not proper; (4) the
surcharge of 5% is legally due; and (5) the interest of 1% per
month on the deficiency donees' gift taxes is due from
petitioners from March 8, 1955 until the taxes are paid.
IN LINE WITH THE FOREGOING OPINION, petitioners are
hereby ordered to pay the donees' gift taxes as assessed by
respondent, plus 5% surcharge and interest at the rate of 1%
per month from March 8, 1955 to the date of payment of said
donees' gift taxes. Respondent is ordered to apply the sum of
P34,371.76 which is refundable to petitioners, against the
amount due from petitioners. With costs against petitioners in
Case No. 347.
Petitioners-appellants herein filed a motion to reconsider the above
decision, which the lower court denied. Hence, this appeal before us.
In the instant appeal, petitioners-appellants herein question only that
portion of the decision of the lower court ordering the payment of donees'
gift taxes as assessed by respondent as well as the imposition of
surcharge and interest on the amount of donees' gift taxes.
In their brief and memorandum, they dispute the factual finding of the
lower court that De la Rama Steamship Company's renunciation of its
rights, title, and interest over the proceeds of said life insurance policies
in favor of the Pirovano children "was motivated solely and exclusively by
its sense of gratitude, an act of pure liberality, and not to pay additional
compensation for services inadequately paid for." Petitioners now
contend that the lower court's finding was erroneous in seemingly
considering the disputed grant as a simple donation, since our previous
decision (96 Phil. 335) had already declared that the transfer to the
Pirovano children was a remuneratory donation. Petitioners further
contend that the same was made not for an insufficient or inadequate
consideration but rather it a was made for a full and adequate
compensation for the valuable services rendered by the late Enrico
Pirovano to the De la Rama Steamship Co.; hence, the donation does
not constitute a taxable gift under the provisions of Section 108 of the
National Internal Revenue Code.
The argument for petitioners-appellants fails to take into account the fact
that neither in Spanish nor in Anglo-American law was it considered that
past services, rendered without relying on a coetaneous promise,
express or implied, that such services would be paid for in the future,
constituted cause or consideration that would make a conveyance of
property anything else but a gift or donation. This conclusion flows from
the text of Article 619 of the Code of 1889 (identical with Article 726 of
the present Civil Code of the Philippines):
When a person gives to another a thing ... on account of the
latter's merits or of the services rendered by him to the donor,
provided they do not constitute a demandable debt, ..., there is
also a donation. ... .
There is nothing on record to show that when the late Enrico Pirovano
rendered services as President and General Manager of the De la Rama
Steamship Co. he was not fully compensated for such services, or that,
because they were "largely responsible for the rapid and very successful
development of the activities of the company" (Res. of July 10, 1946).
Pirovano expected or was promised further compensation over and in
addition to his regular emoluments as President and General Manager.
The fact that his services contributed in a large measure to the success
of the company did not give rise to a recoverable debt, and the
conveyances made by the company to his heirs remain a gift or donation.
This is emphasized by the directors' Resolution of January 6, 1947, that
"out of gratitude" the company decided to renounce in favor of Pirovano's
heirs the proceeds of the life insurance policies in question. The true
consideration for the donation was, therefore, the company's gratitude for
his services, and not the services themselves.
That the tax court regarded the conveyance as a simple donation,
instead of a remuneratory one as it was declared to be in our previous
decision, is but an innocuous error; whether remuneratory or simple, the
conveyance remained a gift, taxable under Chapter 2, Title III of the
Internal Revenue Code.
But then appellants contend, the entire property or right donated should
not be considered as a gift for taxation purposes; only that portion of the
value of the property or right transferred, if any, which is in excess of the
value of the services rendered should be considered as a taxable gift.
They cite in support Section 111 of the Tax Code which provides that —
Where property is transferred for less, than an adequate and
full consideration in money or money's worth, then the amount
by which the value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, ... .
The flaw in this argument lies in the fact that, as copied from American
law, the term consideration used in this section refers to the technical
"consideration" defined by the American Law Institute (Restatement of
Contracts) as "anything that is bargained for by the promisor and given
by the promisee in exchange for the promise" (Also, Corbin on Contracts,
Vol. I, p. 359). But, as we have seen, Pirovano's successful activities as
officer of the De la Rama Steamship Co. cannot be deemed such
consideration for the gift to his heirs, since the services were rendered
long before the Company ceded the value of the life policies to said
heirs; cession and services were not the result of one bargain or of a
mutual exchange of promises.
And the Anglo-American law treats a subsequent promise to pay for past
services (like one to pay for improvements already made without prior
request from the promisor) to be a nudum pactum (Roscorla vs. Thomas,
3 Q.B. 234; Peters vs. Poro, 25 ALR 615; Carson vs. Clark, 25 Am. Dec.
79; Boston vs. Dodge, 12 Am. Dec. 206), i.e., one that is unenforceable
in view of the common law rule that consideration must consist in a legal
benefit to the promisee or some legal detriment to the promisor.
What is more, the actual consideration for the cession of the policies, as
previously shown, was the Company's gratitude to Pirovano; so that
under section 111 of the Code there is no consideration the value of
which can be deducted from that of the property transferred as a gift.
Like "love and affection," gratitude has no economic value and is not
"consideration" in the sense that the word is used in this section of the
Tax Code.
As stated by Chief Justice Griffith of the Supreme Court of Mississippi in
his well-known book, "Outlines of the Law" (p. 204) —
Love and affection are not considerations of value — they are not
estimable in terms of value. Nor are sentiments of gratitude for gratuitous
part favors or kindnesses; nor are obligations which are merely moral. It
has been well said that if a moral obligation were alone sufficient it would
remove the necessity for any consideration at all, since the fact of
making a promise impose, the moral obligation to perform it."
It is of course perfectly possible that a donation or gift should at the same
time impose a burden or condition on the donee involving some
economic liability for him. A, for example, may donate a parcel of land to
B on condition that the latter assume a mortgage existing on the donated
land. In this case the donee may rightfully insist that the gift tax be
computed only on the value of the land less the value of the mortgage.
This, in fact, is contemplated by Article 619 of the Civil Code of 1889 (Art.
726 of the Tax Code) when it provides that there is also a donation
"when the gift imposes upon the donee a burden which is less than the
value of the thing given." Section 111 of the Tax Code has in view
situations of this kind, since it also prescribes that "the amount by which
the value of the property exceeded the value of the consideration" shall prevent delay in the collection of taxes, upon which the
be deemed a gift for the purpose of the tax. . Government depends for its existence. To allow a taxpayer to
first secure a ruling as regards the validity of the tax before
paying it would be to defeat this purpose. (National Dental
Petitioners finally contend that, even assuming that the donation in
Supply Co. vs. Meer, 90 Phil. 265)
question is subject to donees' gift taxes, the imposition of the surcharge
of 5% and interest of 1% per month from March 8, 1955 was not justified
because the proceeds of the life insurance policies were actually Petitioners did not file in the lower court any motion for the suspension of
received on April 6, 1955 and May 12, 1955 only and in accordance with payment or collection of the amount of assessment made against them.
Section 115(c) of the Tax Code; the filing of the returns of such tax
became due on March 1, 1956 and the tax became payable on May 15,
On the basis of the above-stated provisions of law and applicable
1956, as provided for in Section 116(a) of the same Code. In other
authorities, it is evident that the imposition of 1% interest monthly and 5%
words, petitioners maintain that the assessment and demand for donees'
surcharge is justified and legal. As succinctly stated by the court below,
gift taxes was prematurely made and of no legal effect; hence, they
said imposition is "mandatory and may not be waived by the
should not be held liable for such surcharge and interest.
Commissioner of Internal Revenue or by the courts" (Resolution on
petitioners' motion for reconsideration, Annex XIV, petition). Hence, said
It is well to note, and it is not disputed, that petitioners-donees have imposition of interest and surcharge by the lower court should be upheld.
failed to file any gift tax return and that they also failed to pay the amount
of the assessment made against them by respondent in 1955. This
WHEREFORE, the decision of the Court of Tax Appeals is affirmed.
situation is covered by Section 119(b) (1) and (c) and Section 120 of the
Costs against petitioners Pirovano.
Tax Code:

Bengzon, C.J., Bautista Angelo, Paredes, Dizon, Regala, Makalintal,

(b) Deficiency.
Bengzon, J.P., and Zaldivar, JJ., concur.
Concepcion, J., took no part.
(1) Payment not extended. — Where a deficiency, or any Barrera, J., is on leave.
interest assessed in connection therewith, or any addition to
the taxes provided for in section one hundred twenty is not
paid in full within thirty days from the date of the notice and
demand from the Commissioner, there shall be collected as a
part of the taxes, interest upon the unpaid amount at the rate
of one per centum a month from the date of such notice and
demand until it is paid. (section 119)

(c) Surcharge. — If any amount of the taxes included in the

notice and demand from the Commissioner of Internal
Revenue is not paid in full within thirty days after such notice
and demand, there shall be collected in addition to the interest
prescribed above as a part of the taxes a surcharge of five per
centum of the unpaid amount. (sec. 119)

The failure to file a return was found by the lower court to be due to
reasonable cause and not to willful neglect. On this score, the elimination
by the lower court of the 25% surcharge is ad valorem penalty which
respondent Commissioner had imposed pursuant to Section 120 of the
Tax Code was proper, since said Section 120 vests in the Commissioner
of Internal Revenue or in the tax court power and authority to impose or
not to impose such penalty depending upon whether or not reasonable
cause has been shown in the non-filing of such return.

On the other hand, unlike said Section 120, Section 119, paragraphs (b)
(1) and (c) of the Tax Code, does not confer on the Commissioner of
Internal Revenue or on the courts any power and discretion not to
impose such interest and surcharge. It is likewise provided for by law that
an appeal to the Court of Tax Appeals from a decision of the
Commissioner of Internal Revenue shall not suspend the payment or
collection of the tax liability of the taxpayer unless a motion to that effect
shall have been presented to the court and granted by it on the ground
that such collection will jeopardize the interest of the taxpayer (Sec. 11,
Republic Act No. 1125; Rule 12, Rules of the Court of Tax Appeals). It
should further be noted that —

It has been the uniform holding of this Court that no suit for
enjoining the collection of a tax, disputed or undisputed, can be
brought, the remedy being to pay the tax first, formerly under
protest and now without need of protect, file the claim with the
Collector, and if he denies it, bring an action for recovery
against him. (David v. Ramos, et al., 90 Phil. 351)

Section 306 of the National Internal Revenue Code ... lays

down the procedure to be followed in those cases wherein a
taxpayer entertains some doubt about the correctness of a tax
sought to be collected. Said section provides that the tax,
should first be paid and the taxpayer should sue for its
recovery afterwards. The purpose of the law obviously is to
U.S. Supreme Court
Commissioner v. Wemyss, 324 U.S. 303 (1945)
Commissioner v. Wemyss
No. 629
Argued January 9, 1945
Decided March 5, 1945
324 U.S. 303
dg:syll*
Syllabus
1. Pursuant to an antenuptial agreement, respondent made a transfer of
property to his prospective wife in consideration of her promise of
marriage and to compensate for her loss of trust income which upon her
marriage would go to a child by a former marriage. Held, that, under §§
501 and 503 of the Revenue Act of 1932 and applicable Treasury
Regulations, the transfer was a taxable gift in its entirety. P. 324 U. S.
306.
2. The decision of the Tax Court that the transfer was not made for a
"consideration in money or money's worth" within the meaning of § 503 is
binding on review. P. 324 U. S. 307.
3. To relieve a transfer from the gift tax under the Revenue Act of 1932,
there must be a consideration in money or money's worth of benefit to
the transferor; detriment to the transferee is insufficient. P. 324 U. S.
307.
144 F.2d 78 reversed.
Certiorari, 323 U.S. 703, to review the reversal of a decision Of the Tax
Court, 2 T.C. 876, sustaining the Commissioners determination of a
deficiency in federal gift taxes.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
In 1939, taxpayer proposed marriage to Mrs. More, a widow with one
child. Her deceased husband had set up
Page 324 U. S. 304
two trusts, one half the income of which was for the benefit of Mrs. More
and the other half for that of the child, with provision that, in the event of
Mrs. More's remarriage, her part of the income ceased and went to the
child. The corpus of the two trusts consisted of stock which brought to
Mrs. More from the death of her first husband to her remarriage, about
five years later, an average income of $5,484 a year. On Mrs. More's
unwillingness to suffer loss of her trust income through remarriage the
parties, on May 24, 1939, entered upon an agreement whereby taxpayer
transferred to Mrs. More a block of shares of stock. Within a month, they
married. The Commissioner ruled that the transfer of this stock, the value
of which, $149,456.13, taxpayer does not controvert, was subject to the
Federal Gift Tax, §§ 501 and 503 of the Revenue Act of 1932, 47 Stat.
169, 245, 247, 26 U.S.C. §§ 1000. Accordingly, he assessed a deficiency
which the Tax Court upheld, 2 T.C. 876, but the Circuit Court of Appeals
reversed the Tax Court, 144 F.2d 78. We granted certiorari to settle
uncertainties in tax administration engendered by seemingly conflicting
decisions. 323 U.S. 703.
The answer to our problem turns on the proper application of §§ 501(a)
and 503 supra, to the immediate facts. These provisions are as follows:
"Sec. 501. IMPOSITION OF TAX."
"(a) For the calendar year 1932 and each calendar year thereafter, a tax,
computed as provided in section 502, shall be imposed upon the transfer
during such calendar year by any individual . . . of property by gift."
"Sec. 503. TRANSFER FOR LESS THAN ADEQUATE AND FULL
CONSIDERATION."
"Where property is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the
value of the property exceeded the value of the consideration shall, for
the purpose of the tax imposed by this title, be deemed a gift, and shall
be
Page 324 U. S. 305
included in computing the amount of gifts made during the calendar
year."
In view of the major role which the Tax Court plays in federal tax
litigation, it becomes important to consider how that court dealt with this
problem. Fusing, as it were, §§ 501 and 503, the Tax Court read them as
not being limited by any common law technical notions about
"consideration." And so, while recognizing that marriage was, of course,
a valuable consideration to support a contract, the Tax Court did not
deem marriage to satisfy the requirement of § 503, in that it was not a
consideration reducible to money value. Accordingly, the Court found the
whole value of the stock transferred to Mrs. More taxable under the
statute and the relevant Treas.Reg. 79 (1936 ed.) Art 8:
"A consideration not reducible to a money value, as love and affection,
promise of marriage, etc., is to be wholly disregarded, and the entire
value of the property transferred constitutes the amount of the gift."
In the alternative, the Tax Court was of the view that, if Mrs. More's loss
of her trust income, rather than the marriage, was consideration for the
taxpayer's transfer of his stock to her, he is not relieved from the tax
because he did not receive any money's worth from Mrs. More's
relinquishment of her trust income, and, in any event, the actual value of
her interest in the trust, subject to fluctuations of its stock earnings, was
not proved. One member of the Tax Court dissented, deeming that the
gift tax legislation invoked ordinary contract conceptions of
"consideration."
The Circuit Court of Appeals rejected this line of reasoning. It found in
the marriage agreement an arm's length bargain and an absence of
"donative intent" which it deemed essential:
"A donative intent followed by a donative act is essential to constitute a
gift, and no strained and artificial construction of a supplementary statute
should be indulged to tax as a gift a transfer actually lacking donative
intent."
44 F.2d 78, 82.
Page 324 U. S. 306
Sections 501 and 503 are not disparate provisions. Congress directed
them to the same purpose, and they should not be separated in
application. Had Congress taxed "gifts" simpliciter, it would be
appropriate to assume that the term was used in its colloquial sense, and
a search for "donative intent" would be indicated. But Congress intended
to use the term "gifts" in its broadest and most comprehensive sense.
H.Rep. No. 708, 72d Cong., 1st Sess., p. 27; S.Rep. No. 665, 72d Cong.,
1st Sess., p. 39; cf. Smith v. Shaughnessy, 318 U. S. 176; Robinette v.
Helvering, 318 U. S. 184. Congress chose not to require an
ascertainment of what too often is an elusive state of mind. For purposes
of the gift tax, it not only dispensed with the test of "donative intent." It
formulated a much more workable external test that, where "property is
transferred for less than an adequate and full consideration in money or
money's worth," the excess in such money value "shall, for the purpose
of the tax imposed by this title, be deemed a gift. . . ." And Treasury
Regulations have emphasized that common law considerations were not
embodied in the gift tax. *

To reinforce the evident desire of Congress to hit all the protean

arrangements which the wit of man can devise that are not business
transactions within the meaning of ordinary speech, the Treasury
Regulations make clear that no genuine business transaction comes
within the purport of the gift tax by excluding

"a sale, exchange, or other transfer of property made in the ordinary

course of business (a transaction which is bona fide at arm's length, and
free from any donative intent)."

Treas.Reg. 79 (1936 ed.) Art. 8. Thus, on finding that a transfer in the

Page 324 U. S. 307

circumstances of a particular case is not made in the ordinary course of

business, the transfer becomes subject to the gift tax to the extent that it
is not made "for an adequate and full consideration in money or money's
worth." See 2 Paul, Federal Estate and Gift Taxation (1942) p. 1113.

The Tax Court in effect found the transfer of the stock to Mrs. More was
not made at arm's length in the ordinary course of business. It noted that
the inducement was marriage, took account of the discrepancy between
what she got and what she gave up, and also of the benefit that her
marriage settlement brought to her son. These were considerations the
Tax Court could justifiably heed, and heeding, decide as it did. Its
conclusion on the issue before it was no less to be respected than were
the issues which we deemed it was entitled to decide as it did in Dobson
v. Commissioner, 320 U. S. 489; Commissioner v. Heininger, 320 U. S.
467; Commissioner v. Scottish American Investment Co., 323 U. S. 119.

If we are to isolate as an independently reviewable question of law the

view of the Tax Court that money consideration must benefit the donor to
relieve a transfer by him from being a gift, we think the Tax court was
correct. See Commissioner v. Bristol, 121 F.2d 129. To be sure, the
Revenue Act of 1932 does not spell out a requirement of benefit to the
transferor to afford relief from the gift tax. Its forerunner, § 320 of the
1924 Act, 43 Stat. 253, 314, was more explicit in that it provided that the
excess of the transfer over "the consideration received shall . . . be
deemed a gift." It will hardly be suggested, however, that in reimposing
the gift tax in 1932 Congress meant to exclude transfers that would have
been taxed under the 1924 Act. The section taxing as gifts transfers that
are not made for "adequate and full [money] consideration" aims to reach
those transfers which are withdrawn from the donor's estate. To allow

Page 324 U. S. 308

detriment to the donee to satisfy the requirement of "adequate and full

consideration" would violate the purpose of the statute and open wide
the door for evasion of the gift tax. See 2 Paul, supra, at 1114.

Reversed.

MR. JUSTICE ROBERTS dissents, and would affirm the judgment for the
reasons given in the opinion of the Circuit Court of Appeals.

* Treas.Reg. 79 (1936 ed.) Art. 1:

"Imposition of tax. -- . . . The tax is not limited in its imposition to transfers

of property without a valuable consideration, which at common law are
treated as gifts, but extends to sales and exchanges for less than an
adequate and full consideration in money or money's worth."