Commissioner of Internal Revenue v. Brown

PETITIONER: Commissioner of Internal Revenue
LOCATION: Point of picking up hitchhiker

DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 380 US 563 (1965)
ARGUED: Mar 03, 1965
DECIDED: Apr 27, 1965

Facts of the case


Media for Commissioner of Internal Revenue v. Brown

Audio Transcription for Oral Argument - March 03, 1965 in Commissioner of Internal Revenue v. Brown

Earl Warren:

Number 63, Commissioner of Internal Revenue, Petitioner, versus Clay B. Brown, et al.

Mr. Barnett.

Wayne G. Barnett:

Mr. Chief Justice, may it please the Court.

This case is an income tax case and it is I think one of very special importance.

It involves a form of transaction.

It has become standardized, has been widely exploited and widely publicized.

Under which the stockholders are closely held corporation, transfer the stock to a tax exempt charity.

On the charity's promise to remit to them all the earnings of the business until they have received a -- some prescribed amount.

The question is whether the earnings remitted to the stockholders are taxable then as ordinary income or as capital gain that is as gain from sale or exchange of the capital assets.

The respondent's contend that such transaction is a sale and that the earnings remitted to them -- to the stockholders are simply payments of a purchased price and thus, amounts realized from a sale taxable as capital gain.

We contend that what the stockholders have is simply a right to the future income which when received must be taxed to them as income.

Basically in our view, the transaction is simply a gift of a remainder in busi -- in a business.

Arthur J. Goldberg:

In other words, you said a kind of sale.

Wayne G. Barnett:

It is not a sale.

It may -- it may be a tax within another character, I would deal with that later.

It is not an installment sale.

Not -- the question also is whether these receipts in the later years are proceeds of the sale and these receipts are not proceeds of the sale.

Arthur J. Goldberg:

So this means (Inaudible)?

Wayne G. Barnett:

Not at all, not at all.

I think a taxpayer can do anything in the world he wants to, motivated solely for tax purposes and the transaction stands or falls for what it is regardless of why he did it.

If in this case they had not done it for tax purposes, you would have no doubt at all that it was gift.

If they'd done this transaction because they were charitably motivated and simply wanted to give something for cancer research, there would be no question if this would be a gift with retained interest.

Now just as a transaction is no worse because it was done for tax purposes likewise it is no better because it is done for tax purposes.

Arthur J. Goldberg:

How about (Inaudible)?

Wayne G. Barnett:

Well, let me --

Potter Stewart:

And they had a right to recapture the property if it --

Wayne G. Barnett:

That is correct.

Potter Stewart:

(Voice Overlap)

Wayne G. Barnett:

That is quite correct.

I wanted (Voice Overlap) --