Commissioner v. Duberstein

LOCATION:Dry Docks at Reed, WV

DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 363 US 278 (1960)
ARGUED: Mar 23, 1960
DECIDED: Jun 13, 1960

Facts of the case


Audio Transcription for Oral Argument – March 23, 1960 in Commissioner v. Duberstein

Earl Warren:

Number 376, Commissioner of Internal Revenue, versus, Mose Duberstein, et al.

Mr. Elman.

Philip Elman:

Mr. Chief Justice, may it please the Court.

This case, which is here from the Sixth Circuit and the next case, the Stanton case, which is here from the Second Circuit, also presents the question of distinguishing between gifts and income for federal tax purposes.

As Mr. Rauh pointed out unlike the Kaiser case, these two cases present the issue in the more familiar general context of payments in commercial and employment relationships and they do not involve the special differentiating factors as to strike benefit payments upon which Mr. Rauh has relied.

The facts of the Duberstein case are extremely simple.

They are not in dispute and indeed, they are based entirely upon the testimony of the taxpayer himself and his account.

Mr. Duberstein is the president of an Iron and Metal Company in Dayton, Ohio.

That company did business with another corporation in New York City, the Mohawk Metal Company of which the president was Mr. Berman.

And the transactions between these two companies were usually conducted over the telephone, conversations between these two men.

And occasionally, Mr. Berman would inquire of Mr. Duberstein if he knew the names of certain customers who used chemical products which were sold by the Mohawk Company but not by Duberstein’s company and if Mr. Duberstein had such information, he would furnish it to Mr. Berman.

He testified and we accept his testimony entirely that he gave this information pituitously without any hope or expectation of payment or reward.

Nonetheless, in 1951, as Mr. Rauh has told you, he received from the Mohawk Company, a Cadillac for which the company paid $4250 and the ultimate question in the case is whether that’s a gift or income to Mr. Duberstein.

Now, the circumstances in which that Cadillac was given were described by Mr. Duberstein.

And again, I wish to make it clear that we accept this testimony and all the implications of it entirely.

Mr. Berman called Mr. Duberstein on the telephone from New York and he, Mr. Berman, told that due to the fact that the information I had given him was so helpful that he felt he wanted to give me a present and I told him he didn’t owe me anything and he said, “Well, he had a Cadillac car as a gift.”

Now I should send to New York to receive it which I finally did.

I told him he owed me nothing and I didn’t expect anything for the information.

I didn’t intend to be compensated, but he insisted that I accept this Cadillac car.

On cross-examination, he was asked whether he thought he would have gotten this car, had he not given the information to Mr. Berman.

His answer was, “I don’t think so.”

Mr. Duberstein —

Earl Warren:

What is the question again, please?

Philip Elman:

The question was, “Mr. Duberstein, this information, I believe, you testified proved valuable to Mohawk.

Had you not given him this information, would you still have gotten this Cadillac car” and the taxpayer answered, “I don’t think so.”

Earl Warren:

Mr. Elman, may I ask you this question that may not bear in your case particularly, but suppose he had expected something without an agreement, but suppose he thought “Well, I get them these customers, I will get something,” would that affect your case any?

Philip Elman:

I don’t think it would be necessary to support our position here.

We would merely confirm what we think to be perfectly clear from the taxpayer’s own testimony that this car was given in payment of services rendered, whether or not the recipient received it, we think it’s wholly immaterial.

Earl Warren:


May I ask a question, (Inaudible)

Philip Elman:

No, he wasn’t — he wasn’t asked that question.

I think I should say, in fairness to Mr. Duberstein that when he discovered in 1954, he did not show it on his income tax return, he treated as a gift.

He found out about this thing apparently the first time, three years later in 1954.

The Internal Revenue Service was auditing Mohawk’s return in New York and they discovered that Mohawk had deducted the cost of this car as a business expense, treating it as a payment in the nature of a finder’s fee.

At that point, the Internal Revenue Service again had look at Mr. Duberstein’s return and inquired of him as to the transaction.

And Mr. Duberstein’s account on his instructions got in touch with Mohawk’s account and asked why it was, that Mohawk had taken this deduction.

Apparently, Mr, Duberstein was not only surprised.

He was quite (Inaudible).

This had been done and the accountant testified, this is on page 21 of the record that he had talked – he — Mohawk’s accountant that is, had talked with Mr. Berman, explained to Mr. Berman that the Cadillac was recorded as a gift, it would not be deductible as such.

Mr. Berman wanted to know how it would be deducted and presumably the accountant told him it would be deductible if it was treated by the corporation as its business expense.

Now, I think it might be pointed out here that from the Government’s standpoint, form the standpoint of just the revenue involved getting additional taxes, we would be in a more advantageous position if this were, in fact, a gift from Mr. Berman personally as individual capacity to Mr. Duberstein because in that event, even though Mr. Duberstein would report it as income, he would treat it as a gift assuming it was a valid gift on the analysis which I propose to make.

Berman, of course, could not deduct it, personal gifts are not deductible.

The corporation could not deduct it.

And as a matter of fact, if the — since the corporate funds were being used for this purpose, there might — would it be a proper case of treating that $4250 which was used for that purpose by Berman so that he could make a gift in his individual capacity to Duberstein, he would be using corporation funds and there would be a constructive distribution to him on which he would pay tax so the corporation couldn’t take the deduction on the money that was used to pay the car and neither could Berman.

Now, so that, as I say, the question is to whether it’s gift or not, it doesn’t really depend on whether Government is going to benefit it from a tax standpoint and it shouldn’t depend on that.

Now, on these facts which are undisputed, the Tax Court held that it was not a gift.

The Court of Appeals reversed the Tax Court and held it was a gift.

And although they both reached opposite conclusions, both Courts stated the question in precisely the same way.

And you will find a regular pattern through the gift appealed.

The opinions are all pretty read in the same way.

The question whether it’s a gift depends upon – is a question of fact depending upon the intention of the donor.

If he intended to make a gift, it’s a gift and if he did not intend to make a gift, it’s not a gift.

Generalizations cannot safely be made here.

Each case turns upon its own particular facts.

Therefore, we have to look to all the circumstances in the case.

And that formulation of the issue in terms of looking to the intention of the donor, did he or did he not intend to make a gift has we believe contributed to a good deal of the confusion that one finds going through the hundred odd cases that have been decided in this broad area.

The intention of the donor to make a gift that is the test.

Hugo L. Black:

What do you suggest as a substitute?

Philip Elman:

Well, Mr. Justice Black, we suggest that the intention to make a gift, looking to the donor to see what his state of mind was in relation to this payment requires and we think that the decisions of the lower courts as well as this Court have really made this inquiry although they haven’t put it in precisely the terms in which we have had them on, it really requires an inquiry into the reasons for the payment.

The difference between a Christmas cheque to an employee and a Christmas cheque to a son does not lie in any difference as to the intention of the donor to make a gift in the sense that he intends to give everything for legal and beneficial interest in the property being transferred.

Philip Elman:

The intention to make the gift language is taken from the property law where the — where for purposes of distinguishing between a gift and a loan or a gift and a trust or sale of (Inaudible) A transfers something to B and the inquiry and its controlling its decisiveness, did A intend to make a gift?

Now if that were the — if that were the test for tax purposes, you would have no problem.

Every time there was a gift in the property in contract law sense that would be it.

There would be no need to go any further, but if there’s anything that’s clear and there’s somewhat confused field, it is that the property contract law definition of gift cannot control and it’s never been thought to be controlling because obviously, there are many categories of voluntary payments.

They’re not merely payments by employers and employees, but there are many categories of voluntary payments, gifts in the property contract common-law sense, which are treated as taxable income to the recipient, not merely bonuses to employees but such a common place of gratuities as tips and bonuses, honorary and so on.

And how do you — what’s — how do you differentiate that kind of “gift” which is taxable to the recipient from the kind of gift which isn’t and that — and you can’t answer that question by saying, “It’s the intention of the donor to make a gift”, because in all cases, he intends to make a gift.

If a head waiter shows you to a fine table in a restaurant, you can say to him, “I am so grateful and I want to show my appreciation for your courtesy and your kindness, I’m going to give you $5 and I intend this to be a gift.”

Now, the intention — the intention to make a gift is clear.

There maybe even an intention that the — that the waiter should not have to pay income tax on it, that’s immaterial.

Tom C. Clark:

But that’s before us.

Philip Elman:

I know [Laughter] I know that there are waiters — there are waiters who have been sent to jail for not reporting it tips.


Philip Elman:

Well, there’s no question no one — no one doubts — no one doubts that one who has — which rendered services even and who has received payment, even though the person who has received the benefit of those services has — was given full legal compensation, given everything that’s due —

Hugo L. Black:

Whatever the standard here, the Tax Court found your way didn’t it?

Philip Elman:

The Tax Court found our way.

The Court of Appeals reversed but this case was not brought here to the — by the Government simply in order to reinstate the Tax Court decision which from — what we are really seeking, Mr. Justice, is clarification of the legal test for determining this question of fact.

It was asked in the preceding argument, is this a question of fact or is it a question of law?

Of course, it’s a — it’s a question of fact in the sense that the conclusion turns upon the facts, but it is a question of law as to what facts are relevant and significant.

Hugo L. Black:

Whatever standard, I suppose you would say that up until then, we shouldn’t have to bring them all up here to determine whether they decided the facts right.

Philip Elman:

Mr. Justice, we are hoping that — that in these two cases found in Duberstein, you will provide guidance to the Internal Revenue service which has — which has these cases ever increasing number with the — with the increase in rates of taxation.

Since World War II, there’s been a proliferation of this so-called business gifts.

The search for sources of economic benefits out of tax free income will not end with these cases, it will undoubtedly go on but we are hoping that you’ll give the Commissioner and the taxpayers and the lower courts guidance as to what they should look for when they look at the facts —

Felix Frankfurter:

Mr. Elman, what do you — what do you — what would please you if it came out of this Court because this case — that this Court would formulate to the guidance for the treasury people who I’m sure with conscience would decide as follows that would improve upon, add to or subtract (inaudible) bares all the inference of Mr. Justice Cardozo’s (inaudible)

Philip Elman:

We — we believe — we believe that the dissenting opinion of Mr. Justice Brandeis as in the Bogardus case, the opinion of Judge Learned hand in the Bogardus case in 88 2d., which we think really was summarized briefly and compendiously in the dissenting opinion of this Court, accurately states the question because although the word “intention” is used, the test is really – as stated by the dissent is choosing among competing motives that dominated the conduct.

That’s just another way of saying, “Why was the gift made?

What was the reason?”

Not that he intend to make a gift in the common-law property sense of conveying full beneficial and legal interest.

Did he intend to make a gift in the sense that the recipient shouldn’t have to pay a tax?

But was he making the gift for a gift reason and that requires the Court to define a “gift reason”.

Now Mr. Justice Brandeis —

Hugo L. Black:

Are you asking (Voice Overlap)

Philip Elman:

Not at all.

We accept not only the dissenting opinion in the –in the —

Hugo L. Black:

I don’t remember accepting that case.

Philip Elman:


Hugo L. Black:

Has it been accepted as a rule for the general substance would stand it.

Philip Elman:

The Bogardus case, I must say in all — in all candor has — has been a contributing factor in the — in the lack of enlightenment which provide this area because of the use of the word “intention.”

The word intention as used in the property law sense has been — has been —

William O. Douglas:

(Voice Overlap) Tax Court used the standard of intention and followed your way —

Philip Elman:

We reject — we reject the reasoning of a Tax Court as well as — as well as the reasoning of the Court of Appeals.

It’s true — it’s true that the Court, the Tax Court found for us but we did — a per curiam reinstatement of the Tax Court’s decision in this case, well it might be provide some revenue – we think it only compound the confusions.

Felix Frankfurter:

(Inaudible) even this is one of those situations in the law doesn’t (Inaudible) in which it is important to negative rather than to strike to hit upon a magnitude failed operating of the formula, this Court would effectively clear out a lot of rubbish — a rubbish and by rubbish I mean irrelevancy which affects the mind from the real issue.

Philip Elman:

The real issue, as we see it, is to distinguish between gift reasons and non-gift reasons.

And we think that the inquiry of the trier fact has to be into the reasons.

And we think that the dividing line between gift and non-gift is the line that distinguishes between personal reasons on the one side whether they’d be good reasons, bad reasons and no reasons, whether they’d be reasons of love or reasons of hatred, whether they’d be reasons of benevolence or malevolence, a gift can be made out of — out of — the most meretricious reasons and then they want to get his picture on the paper, but it’s still a gift if we think if it’s made for any personal reason.

Felix Frankfurter:

If you think of any limitation and the dissent in Bogardus, it seems to me so they were made here.

Philip Elman:


Felix Frankfurter:

When he gets down to talking about, has it been made with the intention of services whether the part should be required more completely though full equipment have been given if so if there’s a tax.

Has it been made to show good will and esteem of kindliness to other persons who have to do is serve whether to obtain etcetera, etcetera.

Philip Elman:

We —

Felix Frankfurter:

Now, if — if this Court cleans out as it were, then the application of these inevitably partly subjective sense they’re inevitably partly subjective, aren’t they?

Philip Elman:

So far as an individual was concerned —

Felix Frankfurter:

Then the individual case ought not to be brought here and we ought not to take it.

Philip Elman:

Mr. Justice, so far as the gifts between two individuals are concerned, this question of fact maybe difficult but those cases will not arise because ordinary they have no tax significance, putting charitable gifts aside and we are not talking about charitable gifts at all here.

A gift by — a gift by the donor is not deductible by him and it’s in the fact that it’s not reported as income to the — by the recipient has no — no real tax significance.

The line that we are suggesting, which we think is based upon the structure and design of the statute as well as all the cases that you decide in this area is the difference between so-called “gifts for personal reasons” and gifts “for reasons that are so closely related to the production of income or so closely related to an income producing activity, the performances and services of the carrying on of a business for profit,” that the expenditure for that purpose is deductible as a business expense.

We think that the structure of the statute excludes the notion that you could have a deductible gift.

William J. Brennan, Jr.:

Now Mr. Elman, where would your test leave gifts by corporations to the local Red Cross or to alien rescue or even Harvard University?


Philip Elman:

I’m sorry.

Philip Elman:

I didn’t get the (inaudible).


Mr. Justice, five charitable gifts are concerned — there’s no problem and the statute itself deals with that.

A charitable gift is deductible by a corporation.

Now, we do not contend and we could not contend that there’s anything in the Federal Tax Law that prevents corporations from making gifts, they’re not charitable – the leading case in this area is the case decided by the Supreme Court of New Jersey not to argue when Mr. Justice Brennan was sitting there, the 18 Smith case, which recognizes that corporations too sharing the benefits of our society may properly be called upon to share in the burden and a corporation where it may properly do so under — under the applicable state law may make a gift.

But when you’re dealing with a — dealing it with a corporation which is making a gift not to the Red Cross or not to the victims of a disaster but to an employee or to someone who has rendered a business service of value to the corporation, then you have — then as — then you don’t have to worry too much about the issues of fact or the triers of fact because if you have really a double barreled presumption, the presumption which almost all these cases recognized that where — where a payment is made from an employer or an employee, there’s a — the presumption is but it’s not a gift.

And the second perhaps most important presumption, more important presumption in this context is that corporate — officers of the corporation, trustees of the corporate funds, they are fiduciary, it is a bridge of trust for an officer of a corporation to make a gift of the corporation’s property to a friend for personal reasons.

Ordinarily, it is presumed that the corporation directors and officers do not engage in such breaches of trust.

They are not committing a misuse or ways of the corporation’s assets and that therefore, when they do make a payment where it is conceivable that motives of a personal nature entered into it, you — you are entitled to presume unless the taxpayer should undertake to show that the officers who made them this gift whether the breach of trust and it’s been — usually corporate funds for that purpose is really practical to them.

In the absence of any attempt by the taxpayer to make such a showing, there’s a reasonable basis for the presumption that the expenditure was made for a proper corporate purpose and a proper corporate purpose is to further the business interest of the corporation.

And if that in fact is so – the presumption at least carries you that far in the absence of the evidence to the contrary, there is really no difficulty so far as trying these case are concerned.

Well take the case of the superannuated employee.

Philip Elman:

Yes, sir.

Under your test, I would suppose it would mean that every one of those would be taxable (Inaudible)

Philip Elman:

Well, if – if I think it makes a big difference.

I think it makes a big difference whether you’re dealing with individual proprietor (Voice Overlap).

Take a corporation.

Philip Elman:

Yes sir.

It’s got a super superannuated employee making the gifts of $5000 on his 75th birthday, now if that’s all there was, where would you come out on that?

Philip Elman:

If that’s all there is, I think it is clearly not a gift because the officers and directors of the corporation could not make that gift for personal reasons.

I’m assuming now that the Court accepts our formulation, not in precise terms but approximately as I’ve suggested it.

The distinction is really between personal reasons and there are vast panoply of personal reasons that covers in business reasons.

If it — if it is a gift to this superannuated employee, only if the gift is made by the donor for personal reasons, a corporation pre — presumptively cannot make use its property in order to satisfy the feelings of affection, compassion of its directors.

If the directors want to make a gift to the — to the — to his older employee for his long and faithful services, the personal reasons —

Hugo L. Black:

Suppose a stockholder —

Philip Elman:


Hugo L. Black:

Suppose he is a stockholder –-

Philip Elman:

Well —

Hugo L. Black:

Would that make any difference?

Philip Elman:

I think it — I think it might very well make a difference because then you’re getting close to the situation that you had in Bogardus.

Philip Elman:

The point about the Bogardus case is that in Bogardus, the gift was not from the corporation as the — As the majority treated it the stockholders were just using the corporation as an agent or a conduit through which they were making the gift and the Court, Mr. Justice Sutherland speaking for the Court said that the stockholders were moved to an act of spontaneous generosity.

There again, he was — the Court was saying this was a personal reason on the point of stockholders.

Now, of course, if the stockholders make the gift, then as far as the corporation is concerned, there’s been a distribution of stockholders and the corporation making the gift and there’s really no harm and no incongruity in reaching out of conclusion that were in fact the gift comes from the stockholders for personal reasons, the recipient doesn’t pay any tax on it.

It’s a gift as far as he is concerned but the important thing is it’s not deductible by the corporation and to that extent to us, it’s highly significant that the so-called donor in these gift cases is either a corporation or other business entity which is engaged in activities for profit and I should like to reserve through it (Voice Overlap)

Hugo L. Black:

Well on statement Mr. Elman that I’m which I understood, I still think the dissent was right in Bogardus.

Philip Elman:

We don’t disagree.

Hugo L. Black:

You haven’t showed me yet why we can decide as the dissent here without overruling the case.

Philip Elman:

Well, I think that the Bogardus’ opinion really has been overruled so far as – the point of the dissent was not only in — in relation to the definition of a gift, but the – as I read — as I read the opinion, it says, “This is a kind of a question as to which the trier fact could have come out either way.

And since the — and since the Board of Tax Appeals in the Second Circuit found it was not a gift, there’s no reason why we should disturb it.”

Now, if Bogardus had come up today so far as the standard of review is concerned, just difference to the lower court determinations, I don’t think there’s any question as to what this Court would do and the dissent was really on the – fundamentally on that.

But on the definition —

Hugo L. Black:

That question — that question should be decided and quickly decided either way —

Philip Elman:


Hugo L. Black:

–under the law.

Philip Elman:

That’s right.

Now — but what we’re really concerned about is giving — giving the public and the Government a test, a legal test what’s the difference between gifts and income we’ve undertaken at some length perhaps on due length in our briefs to –-

Hugo L. Black:

Well you are not asking — you’re not asking us then here to decide that on these facts, the Government is entitled to win in this case.

Philip Elman:

Well —

Hugo L. Black:

If you are — if you are saying it’s a question of fact, are you?

Philip Elman:

If Your Honors will — will clarify the rule of law governing these facts, I don’t think there’s any question as to how the facts would square with — with the rule of law.

I think even under the — under the test that’s been applied by the lower courts here, it’s clear that this was here — was an effect with quid pro quo in exchange for services even though there was no hope or expectation.

William O. Douglas:

But under — under your test, all we have to it seems to this corporation making the so-called gift as it was, it couldn’t be a gift unless perhaps all the stockholders agreed to it.

Philip Elman:

Well I think even though that all the stockholders agreed to it, that wouldn’t necessarily establish it as a gift, and they wouldn’t have any further question of who made the gift.

But I — I think — I think that we are — we’re not putting this thing in terms of corporations can’t make gifts for tax purposes.

What we are saying here is that the —

William O. Douglas:

That’s the quote directors couldn’t act for the corporation out of the feeling of their charity to superannuated employee.

Philip Elman:

We’re saying — we’re saying that where — we’re saying that where a corporation makes a gift and either the corporation is making a gift, just as in the case of many other taxpayers, you have to decide whether the reasons which prompted the gift, the inducing force, as Mr. Justice Brandeis said the dominating motive was a proper gift reason or not.

And we think in the case of a corporation, this presumption that derives not from the federal law but from General Corporation Law aids the trier of fact in making that determination.

That’s essentially our position.

We point this out simply to deal with the — deal with the suggestion that if you look to the reasons why the gift was made, you have to cycle analyze and do that all kinds of things that is impossible and so on.

Charles E. Whittaker:

Mr. Elman, isn’t that true actually whether they use multi reasons of what not would be the ends out to get back to was their act, don’t they do that intent, will you not?

Philip Elman:

Well I think the State that there’s a donated intent in all these cases is to begin the problem is not to end it, because in every cases that’s in the book something the tax — it is a donative intent and it doesn’t make any difference how clear that intent was expressed with this.

The (inaudible) employer says, “I intend in every conceivable way that this shall be a gift for all purposes and still, if it’s — if he’s — if he — if the recipient of the gift is a 100% stockholder of the corporation, the President and the corporation is making the gift in one of these cases, the President has a 74% stockholder and he — and he voted himself a wedding gift to $7500.

There’s no question about the intention to make a gift, it’s perfectly clear.

But the —

Charles E. Whittaker:

But doesn’t our Court — our (inaudible) have said that his own declarations of serving are not conclusive at all.

Philip Elman:

Well, I don’t see why you have to treat that as a sham, and then they’d be put in — the corporation is expressing a genuine intention that this shall be a gift.

There’s no — this isn’t a sham.

It’s a gift because a gift as the courts define it in the common law is delivery by the donor accept this by the donee plus an intention of making a gift.

Well here’s a (inaudible)

Felix Frankfurter:

Do you think that some of the matters and that intent and intention in almost every branch of the law either confusing instead of an aluminating thing in order to retire.

Philip Elman:

The intention — the intention I think is probably here to stay, Mr. Justice.

And — and —

Felix Frankfurter:

Well I — well I don’t —

Philip Elman:

— and depend —

Felix Frankfurter:

I spent 20 years — 25 years speaking and I solemnly sworn never to use it and if I did, it was non-conscious betrayal of my purpose.

Philip Elman:

Well I think that academic freedom gives more than that (Voice Overlap) I — I can’t —

Felix Frankfurter:

The judges having been more — they don’t have the other things making fun of you.

Philip Elman:

Well I — I think — I think our point on that would be that while the intention is a confusing word, it appears in almost every area of the law and whenever it’s used, it’s used of the slightly different emphasis —

Felix Frankfurter:

Why do you have to use it?

Philip Elman:

We have to use it because the Supreme Court has used it.

Felix Frankfurter:

Then why don’t we have to use it because you use it [Laughter].

Hugo L. Black:

— your condition is their desire but exceeded the difficult draw.

Philip Elman:

We don’t think it’s really going to be.

It will be hard in the individual case which won’t come up in the case —

Hugo L. Black:

Like a question of judgment at the end isn’t it?

Philip Elman:

In the case put by Judge Learned, if I may continue sentence.

Earl Warren:

Yes, you may.

Philip Elman:

In the hypothetical case put by Judge Learned Hand in Bogardus case that the patient adding something to the bill of the surgeon.

It maybe that the surgeon has just not adequately appraised the value of its services and the — and the patient is just adding something on to it just as the client add something to the lawyers bill and it’s still compensation to the lawyer or the doctor.

Philip Elman:

But if — but if — but the addition is made out of feelings of affection or regard, and I think this is probably more vivid and in relation to a nurse rather than a doctor who has rendered [Laughter] services to a patient during the long illness where feelings of affection very frequently develop.

Where that — where that is done, you may have a difficult question of fact, but you don’t have that question in the ordinary corporate situation often discussed, thank you very much.

Earl Warren:

Mr. Elman, you may have five minutes in rebuttal.

Philip Elman:


Earl Warren:

We took much of your time in questioning.

Philip Elman:

Well I — I —

Earl Warren:

Mr. Kusworm and if you Mr. Kusworm if you should need five minutes more, you may have it too.

Sidney G. Kusworm, Sr.:

Thank you, Mr. Chief — Honorable Chief Justice and Associate Justices.

This is the greatest court in the land. While we’re speaking of Bogardus, I was just wondering in the reading of the briefs in these three cases whether they are not — they were written by the same distinguished lawyer.

In the Kaiser case, here’s what the Government said about Bogardus.

While it maybe possible to articulate such a difference, we think that rather an attempt now to rationalize Bogardus in new terms, it ought to be recognize simply that it reflected and approached that has since been rejected by this Court and is no longer of value as present.

Now in the brief in the Stanton case, the same question on Bogardus is answered this way.

The Bogardus case is reconcilable with the suggested definition of gifts.

That is the use of motive for the determination of a gift.

In the Kaiser brief, the Solicitor General also speaks about the Bogardus case in a different way.

And so they seem to be some confusion.

Now, if Your Honors please, while Mr. Elman has given the facts in this case, and then very fair there are one or two things that he hasn’t said that I think ought to be said in order to clarify the situation.

Duberstein and Berman, Berman was the head of Mohawk were friends and as Mr. Rauh said, they have frequent business dealings with each other and frequent conversations over the phone and they were very friendly.

And every once in a while, Berman would ask Duberstein if he knew of somebody that handled a certain product that Duberstein didn’t handle.

On this particular day, in this particular instance, Berman said to Duberstein, “Do you know of anybody who might be interested in buying so and so,” mentioning materials and Duberstein said, “I don’t know.

Why don’t you try so and so and so and so, because I haven’t any idea whether they can use them or not.

Now that’s the last of Duberstein heard about.

Until months and months later, now mind you Duberstein didn’t contact any of these people.

He had absolutely nothing to do with trying to see what (Inaudible) material.

He didn’t talk to any of them.

He didn’t write any of them.

He had no communication with any of them.

And the telephone call comes from Berman and he said, “I got a Cadillac car and I want to give you as a gift.”

And Duberstein said, “I don’t want a Cadillac, sir I’ve got two cars [Laughter].”

I got a car from myself a Cadillac and I’ve got a car for my wife and he said, “But you got children.

Sidney G. Kusworm, Sr.:

You could always use the car and I want you to take the car.”

So he took the car.

Hugo L. Black:

Did he protest?

Sidney G. Kusworm, Sr.:

Did he what Your Honor?

Hugo L. Black:

Did he protest then?

Sidney G. Kusworm, Sr.:

He didn’t — he didn’t protest.

He didn’t said anything and he didn’t protest.

Felix Frankfurter:

That was — that was an enforced gift, wasn’t it?

Sidney G. Kusworm, Sr.:

Well if Your Honor pleases, I’m not going to make an interpretation.

That’s the business of this very distinguished Court.

But the point I want to make is that that’s the last Duberstein heard about it for four years agent comes in to it.

Hugo L. Black:

A what?

Sidney G. Kusworm, Sr.:

An agent, a revenue agent.

They do come, Your Honor [Laughter] and that he checks Duberstein, “What is the – what about this Cadillac?

He said, “Well what about it,” some worm out now.

He said, “But you got to pay a tax on it.”

He said, “I don’t have a play a tax on it.

This was a gift.

I didn’t render this fellow any service.

I didn’t get him many customers.

I am not the one in business.

I’m not a stockholder.

I’m not a director of this company.”

Just as Your Honors said, you practically forced the thing on me, I didn’t need it.

Well the agent said Mohawk deducted it.

When he said, “Why didn’t you go after Mohawk?”

Now this is off the record and the agent said the statute of limitation is gone by.

Well then he said, “Why don’t you after Berman?”

He said, “Berman is dead.”


Felix Frankfurter:


Sidney G. Kusworm, Sr.:

I was going to say it that he don’t want to pay it but that’s what he did say.

Now, that’s this case.

So we go to the Tax Court.

Duberstein is the only witness other then the accountant because when this man said, the agent said, “You have to pay a tax on it”, Duberstein called up his colleagues and what about it” and he said, “I don’t know anything about it.

I never got a 1099, you never got a 1099.”

That’s the slip that the Government sends out to somebody to gets over $600.

And he said, “Why don’t you check into it?”

So he said, “All right I will.”

So we called up Berman’s accountant and he said, “Did you ever send me a 1099?”

He said, “Certainly, I send everybody and I’ve got registered receipts for them.”

Well he said, “We got a registered receipt for this one?”

He said, “Let me look” and he looks and he said, “No I haven’t gotten it.”

It’s the only one I haven’t got.

Well he said he didn’t get any 1099 from you or anybody else.

He said “How does it come” that Duberstein is being charged with it, he said, “I don’t know.”

But he said, “I’ll tell you what happened.

I called Berman’s attention to this item the $4250 for a Cadillac and I said, “You have to pay the tax on it.”

And he said, “I don’t want to pay a tax on it.

How can get out of paying a tax on it?”

He said, “But what happened?”

Well we said, “I called Duberstein up on the telephone and I asked him to give me the names of some people that might be interested and he told me.

So the accountant said, “Well, if you want to (Inaudible).

He said, “All right that just we’ll do.

We’ll call the (Inaudible)” and that’s exactly what happened to last this case.

Now I say to Your Honor —

Earl Warren:

Who made — who made the gifts?

Who made the gift?

Sidney G. Kusworm, Sr.:

Berman made the gift as far as Duberstein was concerned, Your Honor.

Earl Warren:


Sidney G. Kusworm, Sr.:

I mean I thought he knew about it.

Berman was the president of Mohawk and Berman asked him about certain materials that Mohawk was selling.

But when Your Honor as who made the gift, I might answer by saying to Your Honor that I’d like to know the reason that the Solicitor General says that intent is not the rule, but motive is the rule.

In other words, it’s a question of “Why” not “What.”

Now —

Potter Stewart:

The – although so far as Duberstein was concerned, Berman had made the presentation of the Cadillac.

It was on Mohawk’s books, that’s’ where the deduction appears, is that right?

Sidney G. Kusworm, Sr.:

As far as we know, Mr. Justice Stewart, Your Honor, it was on Mohawk books but of course that’s only because the revenue agent told us that.

Potter Stewart:

I see.

Sidney G. Kusworm, Sr.:

We had no knowledge at all on whose books it was or if it was on anybody’s books.

Now the point that I want to make is, if I may, that this is not a matter for this Court to determine, that this is a matter for the Congress to determine.

And I think, Your Honor, Mr. Justice Black made the suggestions when the Government was arguing this case.

In other words, a corporation can make a gift.

For 15 years we’ve been going by the usual and accepted way of doing businesses as far as gifts were concerned.

Now, if there is to be a clarification and the gift is to be by motive and not by intent then it’s for the Congress to say, and not from the Supreme Court of the United States just as in (Inaudible) cases, where people who were giving gifts for answering questions on the television and weren’t paying taxes on them, they didn’t come to the Supreme Court.

They went to the Congress and the Congress passed Section 74, which cured that situation and which made all of these gifts taxable.

And that’s what ought to be done in this case if there’s any question of the Solicitor General wanting motive taken for intent and wanting clarifications and all that sort of things.

This Section is very clear.

This section doesn’t need clarification.

It needs addition of the things that they want should be there.

And exclusions from gross income include gifts, requests, and devices, the value of the property acquired by gift request, devise or inheritance etc.

Now, that’s very plain.

Now if there’s to be an enlargement of that, then it is for the Congress of the United States to say and not for the Supreme Court.

Now, getting back, I had all of these various distinctions that I was going to make in the various cases that have been cited but I am not going to do that.

I’m just going to include by saying what was said by the Court of Appeals for the Sixth Circuit.

And that was, if I may take for the moment please, I’m sorry but on the blue prints of my argument I lost the place.

We have repeatedly held that the taxpayer has made out his case when he has put in proofs clearly and distinctly tending to show determinating facts.

The presumption of the Commissioner is right and it’s procedural and cannot survive such proofs unless they are challenged by contrary proofs or destructive analysis.

And we’ve gone so far as to say that the taxpayers’ affirmative evidence made itself contain the necessary challenge and furnish the material for such analysis.

We find that the taxpayers’ evidence clearly and distinctly offered proof that the Cadillac car was in fact a gift.

Sidney G. Kusworm, Sr.:

It was not challenged by contrary proofs or destructive analysis.

It maybe contended that in such a case as this, we should add suspicion into presumption of correctness to aid the Commissioner’s assessment of the deficiency.

This we cannot do.

This matter should be decided on evidence.

In the case of Landsberg versus the Commissioner — versus the Commissioner supra, Judge Simon’s characterized such attitude as follows that most the Board’s finding rest upon mere suspicion upon an inference and generosity of the kind here involved is so rare that it must necessarily from that fact alone be suspected.

We hold that the taxpayer met his burden of proof that the Cadillac was a gift and the decision of the Tax Court is accordingly reversed.

Thank you very much.

Earl Warren:

Mr. Elman, you may take your final minutes now.

Philip Elman:

Thank you (inaudible).

Mr. Kusworm referred to the Pot O’ Gold case, a case in the Tax Court.

I would like to take a minute to discuss the problem with that case raised.

In that case a radio show picks a name out of the telephone directory at random and called you up if you are home, you got $900 and the Tax Court said, “That was a pure case of the recipient receiving something for nothing.

He did nothing at all and therefore it was a gift.”

Now, that something for nothing test has been much relied upon by the taxpayers in this area and I think it would — might be worthwhile to say just a few words about it.

It’s taken from the opinion of Mr. Justice Reed in the American Dental Case in 318 U.S., which was a cancellation of indebtedness case.

And that case itself has been very substantially limited if not overruled in the subsequent Jacobson case where Mr. Justice Reed dissented on the ground of this Court, it was being overruled.

But apart from that, the something for nothing test which focuses on what the donee did is wholly inconsistent with the intention of the — of the donor to make a gift test.

Intention test whatever its defects as a formulation that at least focuses the inquiry on the man who makes — who makes the transfer on his state of mind.

The something for nothing test says, well it doesn’t make any difference what the intention, motive and so on whether it was a selfish interest, business interest.

If the man who receives has received something for which he has given nothing, then to him it’s a gift.

Now those cases, Pot O’ Gold and similar cases were all decided before Glenshaw.

In the Glenshaw case, this Court held that a windfall maybe income.

Potter Stewart:

Isn’t it true also that the Pot O’ Gold case was expressly corrected by the 1954 statute?

Philip Elman:

Yes, the 1954 Code does take care of prize and that kind of a prize would be taxable, but we think the Pot O’ Gold was wrong under the 1939 Code for the simple reason, that a windfall and a gift are not synonymous.

In Pot O’ Gold or in any other situation where somebody has received something for nothing, it’s a windfall.

Take the purest case of a windfall, a literal case.

A man is walking down the street and the wind blows a hundred dollar bill in his direction, he reaches out, puts it in his pocket, he looks around, there’s nobody in sight.

Is that a gift, certainly not?

Its not even a gift in the property law says because the original owner of the bill may be still looking for it.

He’s not intending to make any gift.

Philip Elman:

And even — even where — even where the gift again in quotation mark —


Philip Elman:



Philip Elman:

I don’t — I can’t cite any cases but the treasury cases (Inaudible) to this and I think that under the rationale of Glenshaw it’s income then it is certainly not a gift.

Potter Stewart:

It didn’t tell the — it didn’t tell if it has lost it and comes around again.

Philip Elman:

If it’s — if it’s kept under a claim of right and is unrestricted use in enjoyment, I take it the decision of this Court say it’s income.

Now, this point that there is — that there is nothing done by the recipient has — has attributed — contributed to a good deal of confusion in this area particularly in the Widows Bonus cases because there the widow has herself not rendered any services and the courts said, well she hasn’t done anything, she’s — it’s something for nothing as far as she is concerned.

And the courts I must confess have been — have been seriously rather restraining this area by the rulings of the Commissioner himself who we think was responsible for this by initially making an erroneous ruling which the courts followed and then withdrawing it when it was too late.

Now, if the something for nothing test is — is accepted, as I say, it would not only be in the face of everything — of all the case law in this field which focuses on the situation from the donors our position, but it is also as a matter of analysis wrong because it confuses gifts and windfalls.

Thank you very much.