Commissioner v. Duberstein, et al. (No. 376); Stanton v. USA (No.

546) (CONSOLIDATED)
363 U.S. 278 June 13, 1960
PONENTE: Justice Brennan

No. 376 (Duberstein) No. 546 (Stanton)

FACTS
Respondent Mose Duberstien, the president of the On Nov. 30, 1942, upon his resignation as comptroller of
Duberstein Iron & Metal Company based in Dayton, Trinity Church in New York City and as president of its wholly
Ohio, gave Berman, the president of Mohawk Metal owned subsidiary, Trinity Operating Company, petitioner
Corporation, names of potential customers of the Alden Stanton was given $20k by said operating company as
latter’s products. a gift in appreciation for his services.

Because the information proved so helpful for Mohawk Stanton did not include said amount to his gross income.
Metal, the latter gave Duberstein a Cadillac. Resistant at
first, Duberstein eventually accepted the same,
protesting, however, that he had not intended to be
compensated for the information.

Mohawk deducted the value of the Cadillac as a business

expense on its corporate income tax return. On the
other hand, Duberstein did not include the value of the
Cadillac in his gross income for 1951, deeming it a gift.
Commissioner
Asserted a deficiency for the car's value against Asserted deficiency against Stanton. After payment and
Duberstein. administrative rejection of a refund claim, Stanton sued the
US for a refund.
Tax Court District Court for the Eastern District of New York.
Affirmed. In favor of Stanton.
CA
Reversed. Hence, this petition for certiorari. Reversed. Hence, this petition for certiorari
ISSUE
WON the Cadillac was a gift? WON the $20k was a gift?
HELD
The conclusion whether a transfer amounts to a 'gift' is one that must be reached on consideration of all the factors.

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.

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. Com.)

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, it is not a gift.

Where the payment is in return for services rendered, it is irrelevant that the donor derives no economic benefit from
it. (Robertson v. US)

What constitutes a gift?

A gift in the statutory sense proceeds from a detached and disinterested generosity, (Com. v. LoBue) out of affection,
respect, admiration, charity or like impulses. (Robertson v. US) The critical consideration, therefore, is the transferor's
intention. (Bogardus v. Com.)

Such intention cannot mean what the cases on the common-law concept of gift call donative intent. In Bogardus, the
donor's characterization of his action is not determinative—that there must be an objective inquiry as to whether what
is called a gift amounts to it in reality. Otherwise stated, the parties' expectations or hopes as to the tax treatment of
their conduct in themselves have nothing to do with the matter.
Case at bar:
The Tax court was correct in not considering the Cadillac The case was remanded to the District Court for further
as a gift. proceedings not inconsistent with this opinion to look
toward new and adequate findings of fact.
As trier of the facts, it was warranted in concluding that
despite the characterization of the transfer of the
Cadillac by the parties and the absence of any obligation,
even of a moral nature, to make it, it was at bottom a
recompense for Duberstein's past services, or an
inducement for him to be of further service in the future.
 Old Colony Trust Co., et al. v. Com.
279 U.S. 716, 730 June 3, 1929
PONENTE: CJ Taft
FACTS:
 William M. Wood was the president of the American Woolen Company during the years 1918, 1919, and 1920.
 By virtue of the resolution adopted by the company on August 3, 1916 which was in effect in 1919 and 1920, it paid
Mr. Wood's federal income and surtaxes due to salary and commissions paid him by the company amounting to
$681,169.88 for 1918 which was paid in 1919 and $351,179. 27 for 1919 which was paid in 1920.
 June 27, 1925 – Before Wood’s death, the Commissioner notified him of his income tax deficiency for the years
1919 and 1920.
 Oct. 27, 1925 – Petitioners, as executors of the will of Wood, appealed with the Board of Tax Appeals.

BTA: In favor of the Commissioner; certified to the Circuit Court of Appeals.

Circuit Court of Appeals: Affirmed.

ISSUES/RULING:
1. WON the payment of tax was a gift? – NO.

The payment for services, even though entirely voluntary, was nevertheless compensation within the statute. Corollary,
the payment by the employer of the income taxes assessable against the employee constitutes additional taxable income
to such employee, as in this case. Such payment was in consideration of the services rendered by the employee, and as
part of the compensation therefor. Such payment constituted income to the employee.

It is therefore immaterial that the taxes were directly paid over to the government. The discharge by a third person of
an obligation to him is equivalent to receipt by the person taxed. The certificate shows that the taxes were imposed
upon the employee, that the taxes were actually paid by the employer, and that the employee entered upon his duties
in the years in question under the express agreement that his income taxes would be paid by his employer. This is
evidenced by the terms of the resolution passed August 3, 1916, more than 1 year prior to the year in which the taxes
were imposed.

2. WON there would be a tax upon a tax if such payment constitutes income to the employee since the employee
will be called upon to pay the tax imposed upon this additional income? –

It is not necessary to answer the argument based upon an algebraic formula to reach the amount of taxes due. In the
first place, no attempt has been made by the Treasury to collect further taxes, upon the theory that the payment of the
additional taxes creates further income, and the question of a tax upon a tax was not before the Circuit Court of Appeals,
and has not been certified to this Court. Questions like this can be settled when an attempt to impose a tax upon a tax
is undertaken, but not now.
 Bogardus v. Commissioner
302 U.S. 34, 41, 43 Nov. 8, 1937
PONENTE: Justice Sutherland
FACTS:
 The Universal Oil Products Company was a corporation organized in 1914. Unopco, on the other hand, had been
organized for the purpose of acquiring, and it did acquire, certain assets of the Universal Company.
 A few days after the sale of the Universal Company's stock to United Gasoline Corporation, the former stockholders,
then stockholders of the Unopco, adopted a resolution resolving that sum of $607,500 would be appropriated, paid,
and distributed, as a bonus, to 64 former and present employees, attorneys and experts of the Universal Company,
in recognition of their valuable and loyal services.
 January 1931 – Petitioner received $10k as a gift or honorarium as described by the stockholders of Unopco.
 The Commissioner assessed petitioner an income tax deficiency holding that such amount was an additional
compensation in consideration of services rendered to Universal and were not tax-free gifts.

BTA: Sustained;
Lower court: Affirmed;

ISSUES/RULING:
1. WON such payments maybe at once gift and compensation for personal service? – NO.
A gift and a compensation for personal service are mutually exclusive. Hence, a bestowal of money cannot, under the
statute, be both a gift and a payment of compensation.

Treatment:
Gift
The value of property acquired by gift, bequest,
devise, or inheritance' shall not be included in gross
income, and shall be exempt from taxation under the
income tax title. (Sec. 22 (b) (3), Revenue Act of 1928)
Exempt from income tax
Compensation
That gross income, among other things, includes
compensation for personal service, of whatever kind
and in whatever form paid. (Sec. 22 (a), Revenue Act of
1928)
Subject to income tax

2. WON the $10k received by petitioner was a GIFT thereby exempt from income tax? – YES.

Unopco stockholders had benefited by the former services of the recipients

Because the Unopco stockholders had benefited by the past services of the recipients, it by no means follows that the
distribution in question was not a gratuity. It nowhere appears in the record that full compensation had not been made
for these services.

The recipients of the gift or honorarium in question never were employees of the Unopco Company, or of any of its
stockholders. The Universal Company, in whose employ some of the recipients then were, was at the time in no way
connected with the Unopco Company or any of its stockholders. Some of the recipients had not been in the employ
even of the Universal Company for many years, and one of them never had been an employee. Neither the Universal
Company nor anyone else was under any obligation, legal or otherwise, to pay any of the recipients any salary,
compensation, or consideration of any kind.

Stockholders at their meeting described the payment as a gift or honorarium

While honorarium always denote a compensatory payment, such term in this case, however, was coupled with the
word gift. The whole tone of the meeting indicates that the intention was to make gifts in recognition of, not payments
for, former services.

Moreover, it was stipulated that the disbursements were not made or intended to be made for any services rendered
or to be rendered or for any consideration given or to be given by any of said recipients to Unopco or to any of its
stockholders. None of these stockholders had the slightest notion that a payment of compensation was to be made.

The resolutions, which employ the word BONUS, were adopted to carry into effect the will of the stockholders
expressed at their meeting.
A bonus payment having no relation to the value of services for which it is given is in reality a gift in part. In the case at
bar, what occurred at that meeting, as already said, indicated their clear intention to make gifts. And since intention
must govern, we must consider the word used in the light of the intention. A gift is none the less a gift because it is
inspired by gratitude for the past faithful service of the recipient.

LOWER COURT – REVERSED.

 Robertson v. U.S
343 U.S. 711, 714 June 2, 1952
PONENTE: Justice Douglas
FACTS:
 Petitioner Robertson is a musician and composer who, between the years 1936 & 1939, composed a symphony.
 December 14, 1947 – Petitioner submitted his symphony and won $25k from a music award for the best symphonic
works written by native-born composers.
 He included said amount in his 1947 income tax return as part of his gross income and computed the tax as though
the $25k had been received ratably during the years 1937, 1938, and 1939.
 Commissioner determined an income tax deficiency on ground that the tax should have been computed under 107
(b) of the Internal Revenue Code as though the award had been ratably received over the 3-year period ending with
1947.
 After paying the deficiency, Robertson filed a claim for refund, and brought this suit to obtain it.

District Court: In favor of Robertson; GIFT, hence, excluded from gross income under Sec. 22 (b) (3) of the Internal
Revenue Code.
CA: Reversed; hence, this petition for certiorari.

ISSUE: WON the $25k was subject to income tax?

HELD: YES.
A cash prize received by the winner of a contest in musical composition is "gross income" within the meaning of 22 (a)
of the Internal Revenue Code, and it is not a "gift" excluded from gross income by 22 (b) (3).

In the legal sense, payment of a prize to a winner of a contest is the discharge of a contractual obligation. The acceptance
by the contestants of the offer tendered by the sponsor of the contest creates an enforceable contract.

The discharge of legal obligations such as the payment for services rendered or consideration paid pursuant to a contract
is in no sense a gift. The case would be different if an award were made in recognition of past achievements or present
abilities, or if payment were given out of affection, respect, admiration, charity or like impulses and not for services as
in Old Colony Trust Co. v. Commissioner. Where the payment is in return for services rendered, it is irrelevant that the
donor derives no economic benefit from it.

Tax, how computed:

In computing under 107 (b) the tax on such a cash prize for a musical composition, the income should be attributed to
the 36 months ending with the close of the year in which it was received which was in 1947 and not some earlier period
of 36 months during which the taxpayer worked on the composition – 1937-1939.
 Commissioner v. LoBue
351 U.S. 243, 246 May 28, 1956
PONENTE: Justice Black
FACTS:
 From 1941 to 1947 LoBue was manager of the New York Sales Division of the Michigan Chemical Corporation.
 In 1944 the company adopted a stock option plan making 10,000 shares of its common stock available for
distribution to key employees at $5 per share over a 3-year period.
 The stock option plan was designed to achieve more profitable operations by providing the employees "with an
incentive to promote the growth of the company by permitting them to participate in its success. They were
nontransferable and were contingent upon continued employment.
 After some time had elapsed and the value of the shares had increased, LoBue exercised the options and purchased
the stock at less than the then current market price. For some of the shares, he gave Michigan Chemical a
promissory note for the option price; but the shares were not delivered until the notes were paid in cash, when the
value of the shares had increased.
 At the end of these transactions, LoBue's employer was worth $8,230 less to its stockholders and LoBue was worth
$8,230 more than before.
 The company deducted this sum as an expense in its 1946 and 1947 tax returns but LoBue did not report any part
of it as income.
 The Commissioner levied a deficiency assessment against him, relying on Sec. 22 (a) of the Internal Revenue Code
of 1939.
 LoBue petitioned before the Tax Court alleging that said options were granted to permit the petitioner to acquire
a proprietary interest in the Corporation and not as compensation for services, hence not subject to income tax.

Tax Court: In favor of LoBue.

CA: Affirmed.

ISSUE: WON the options were granted to permit the petitioner to acquire a proprietary interest in the Corporation,
hence, not subject to income tax?
HELD: NO.
Sec. 22 (a) of the Internal Revenue Code of 1939 defines gross income as including "gains, profits, and income derived
from…compensation for personal service…of whatever kind and in whatever form paid…”

In relation to this, the Congress intended to tax all gains except those specifically exempted and the only exemption
that could possibly apply to these transactions is the gift exemption of 22 (b) (3).

In the case at bar:

The options given were not gifts but were granted as compensation for services which considered part of the gross
income thereby subject to income tax.

LoBue realized a taxable gain when he purchased the stock. He received a substantial economic and financial benefit
from Michigan Chemical, prompted by the latter’s desire to get better work from the former, and this is compensation
for personal service within the meaning of 22 (a).

Moreover, there is no statutory basis for excluding such transactions from "gross income" on the ground that one
purpose of the employer was to confer on the employee a "proprietary interest" in the business

Tax: how computed

LoBue’s taxable gain should be measured by the difference between the option price and the market value of the shares
as of the time when the options were exercised and not as of the time when the options were granted.

REVERSED & REMANDED insofar as the computation of the taxable gain is concerned.
 Starks v. Commissioner
25 TCM 676 1966
PONENTE: Justice Mulroney
FACTS:
 Petitioner Greta Starks, who was unmarried during 1954-1958, filed no Federal income tax returns for said years.
 During that year, she received from a married man, amounts of money for living expenses, and a house (he gave
her the cash to buy it in her name), furniture, an automobile, jewelry, fur coats, and other clothing.
 The Commissioner issued Starks a notice of income tax deficiency (self-employment tax). The monies and the
properties received constituted income received for services rendered.

ISSUE: WON certain money and property received by Starks constituted gross income to her within the meaning of
section 61(a) of the Internal Revenue Code of 1954?
HELD: NO.

The money and property received by petitioner during the years in question were all gifts from the said married man
with whom she had a very close personal relationship during all of the years here involved.

Starks was not gainfully employed during the years here involved except for an occasional modeling job in 1954 for
which her total receipts did not exceed $600. She had no occupation and was not engaged in any business or practicing
any profession and had no investments that yielded her income during said years.
GRANTED.
 Abello, et al. v. CIR
G.R. No. 120721 February 23, 2005
PONENTE: AZCUNA, J.
FACTS:
 During the 1987 national elections, petitioners Abello, Concepcion, Regala & Cruz, who are partners in the ACCRA
law firm, contributed ₱882,661.31 each to the campaign of their partner, Sen. Edgardo Angara, then Senatorial
candidate.
 August 2, 1988 – Petitioners questioned before the Commissioner of IR the donor’s tax assessment issued to them
by the BIR amounting to ₱263,032.66 each alleging that political and electoral contributions are not considered gifts
under NIRC.

CIR: Denied the claim for exemption.

CTA: Petition for review granted; Abello;
CA: Reversed; BIR Ruling No. 344 (1988) provides that in the absence of an express exempting provision of law, political
contributions in the Philippines are subject to the donor’s gift tax; hence, R45.

ISSUES/RULING:
1. WON the contributions are subject to donor’s tax? – YES.

Sec. 91, NIRC (now sec. 98) provides:

(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of
the property by gift, a tax, computed as provided in Section 92 (now 98).
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether
the property is real or personal, tangible or intangible.

Though the NIRC does not define transfer of property by gift, Art. 725 of the Civil Code, by virtue of Art. 18 of the same
code, provides that donations is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it.

Elements of donation:
a) The reduction of the patrimony of the donor;
b) The increase in the patrimony of the donee; and
c) The intent to do an act of liberality or animus donandi.

Case at bar: All the elements are present. Petitioners each gave ₱882,661.31 to the campaign funds of Senator Edgardo
Angara, without any material consideration.
a) The patrimony of the 4 petitioners were reduced by ₱882,661.31 each.
b) Sen. Angara’s patrimony correspondingly increased by ₱3,530,645.249.
c) There was animus donandi or the intent to do an act of liberality since each of the petitioners gave their
contributions without any consideration.

2. WON it is important to look into the intention of the giver to determine if a political contribution is a gift since
animus donandi is an essential element of donation? – NO.

Donative intent is presumed present when one gives a part of ones patrimony to another without consideration. It is not
negated when the person donating has other intentions, motives or purposes which do not contradict donative intent.
Hence, the fact that their purpose for donating was to aid in the election of the donee, as in this case, does not negate
the presence of donative intent.

3. WON the contributions were electoral contributions under the Omnibus Election Code, hence, not subject to
donor’s tax? – NO.
Contribution – includes a gift, donation, subscription, loan, advance or deposit of money or anything of value, or a
contract, promise or agreement to contribute, whether or not legally enforceable, made for the purpose of influencing
the results of the elections but shall not include services rendered without compensation by individuals volunteering a
portion or all of their time in behalf of a candidate or political party. It shall also include the use of facilities voluntarily
donated by other persons, the money value of which can be assessed based on the rates prevailing in the area. (Sec. 94
(a), BP 881)

Petitioners contended that the consideration for a political contribution is the desire of the giver to influence the result
of an election by supporting candidates who, in the perception of the giver, would influence the shaping of government
policies that would promote the general welfare and economic well-being of the electorate, including the giver himself.
SC: Contention is UNTENABLE.
he fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute,
in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a
donation. Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties as
a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political
contributions he received. In fact, as a public servant, he may even be called to enact laws that are contrary to the
interests of his benefactors, for the benefit of the greater good.

Again, donative intent is not negated when the person donating has other intentions, motives or purposes which do
not contradict donative intent. In this case, the purpose for which the sums of money were given, which was to fund the
campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so as to
negate a donation.

NOTE: Sec. 13, RA 7166 (Nov. 25, 1991) – any provision of law to the contrary notwithstanding, any contribution in cash
or kind to any candidate, or political party or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax – NOT APPLICABLE; NO RETROACTIVE EFFECT.

DENIED.