T.C. Summary Opinion 2002-121
UNITED STATES TAX COURT
DELBERT C. GETMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10742-01S. Filed September 23, 2002.
Delbert C. Getman, pro se.
Blaine C. Holiday, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
Respondent determined a deficiency of $6,412 in petitioner's
1996 Federal income tax.
1
Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
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The sole issue for decision is whether, under section 61(a),
a special longevity payment to petitioner, as a retiree, from his
former employer during 1996 is includable in gross income, or
whether such payment is excludable from gross income as a gift
under section 102(a).
Some of the facts were stipulated. Those facts and the
accompanying exhibits are so found and are incorporated herein by
reference. Petitioner's legal residence at the time the petition
was filed was Bloomington, Minnesota.
Petitioner is an attorney and, except for a brief period in
the practice of law, was employed on the editorial staff of West
Publishing Co. (the Company), a legal publishing company, at St.
Paul, Minnesota. Petitioner began his employment with the
Company on July 1, 1954 and retired on December 1, 1979, a period
in excess of 25 years. Petitioner's former employer was highly
successful in the legal publishing business and enjoyed an
excellent relationship with its employees.
In early 1996, the Company announced to its employees and
retirees that the Company would be acquired in a merger with
the Thomson Corp. of Stamford, Connecticut. Sometime in June
1996, the merger was completed, and West Information Publishing
Group became the surviving entity. Petitioner, as a retiree,
received a letter from the Company, his former employer, in June
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1996, which, in addition to announcing completion of the merger,
stated:
West's past success and our future growth, as the legal
publishing headquarters for Thomson, is a reflection of the
tremendous effort of the entire West community. As
announced in February, the Board of Directors approved the
special payout of $1,000 for each year of service, with a
minimum of $5,000 and a maximum of $25,000 per eligible
employee/retiree. The special payment, subject to
applicable tax withholding and any other deductions required
by law, will be distributed on June 24, 1996, in recognition
of the contributions of the more than 6,000 full-time
employees and retirees.
It is our understanding that under current Social Security
law, your Social Security earnings should not be negatively
affected. However, you must report the payment to Social
Security as a "Special Payment" that is the result of your
prior years of West service. A letter detailing the
information you will need to provide to Social Security will
be sent to you with the special payment check.
Shortly thereafter, petitioner received a payment of $25,000 from
the Company. The accompanying cover letter stated, in part, that
the "special payment" was subject to "applicable tax withholding
and any other deductions required by law" and advised that, if
the recipient was a retiree and was receiving Social Security
benefits, the Social Security Administration should be notified
that the $25,000 payment was attributable to years of service
prior to 1996 to avoid any diminution of such retiree's Social
Security benefits due to income "earned" in 1996. Petitioner
notified the Social Security Administration.
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In early 1997, the Company issued to petitioner a Form 1099-
R, Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., with respect to
the $25,000 payment to petitioner during 1996.2
On his Federal income tax return for 1996, petitioner did
not include the $25,000 as income on his return. Petitioner
attached to his return a statement acknowledging receipt of the
$25,000 but claiming that the payment was a gift and, therefore,
was excludable from gross income.
In the notice of deficiency, respondent determined that the
$25,000 payment petitioner received from his former employer
during 1996 was includable in gross income.
Section 61(a) defines income for income tax purposes as "all
income from whatever source derived" and spells out a number of
examples of such income. Section 102(a), on the other hand,
specifically states that "Gross income does not include the value
of property acquired by gift, bequest, devise, or inheritance."
In Commissioner v. Duberstein, 363 U.S. 278, 285-286 (1960), the
Supreme Court stated:
the mere absence of a legal or moral obligation to make such
a payment does not establish that it is a gift. * * * And,
2
The parties did not offer into evidence a copy of the
Form 1099-R, although petitioner acknowledged that Federal and
State income taxes were withheld from his $25,000 payment, and
such withholdings were reflected on the Form 1099-R.
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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, * *
* it is not a gift. And, conversely, "Where the payment is
in return for services rendered, [it] is irrelevant that the
donor derives no economic benefit from it." * * * A gift in
the statutory sense, on the other hand, proceeds from a
"detached and disinterested generosity," * * * "out of
affection, respect, admiration, charity or like impulses." *
* * And, in this regard, the most critical consideration, as
the Court was agreed in the leading cases here, is the
transferor's "intention." * * * "What controls is the
intention with which payment, however voluntary, has been
made." * * *
The record does not support a finding that the $25,000
payment to petitioner, a former employee of the Company, was
intended to be a gift. To be sure, while petitioner's former
employer was grateful to current and retired employees, including
petitioner, for their services to the Company over the years, the
record reflects that the payment in question was not imbued with
any characteristics that would make it a gift under the
principles recited above. To the contrary, the Company
considered the payment as compensation for services rendered, and
this is reflected by the Company's issuance of an IRS Form 1099-R
and the withholding of Federal and State income taxes on the
payment. Moreover, the Company was careful to point out that the
payment was not to be considered a payment for services rendered
during the year of the payment, 1996 (to avoid reduction of
Social Security benefits by retired recipients). However,
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implicit in such statement is that the payment represented
compensation for services rendered for years prior to 1996.
Petitioner's position at trial was that, in Bogardus v.
Commissioner, 302 U.S. 34 (1937), similar payments were made to
former employees of a merged corporation, and those payments were
held to be gifts. In that case, however, the Supreme Court found
that the facts and circumstances clearly reflected an intention
to make a gift, and, accordingly, the payments to employees and
former employees were not includable in gross income. The facts
in this case, however, do not establish an intention by the
Company to make a gift to its former employees or that it
proceeded from a detached and disinterested generosity out of
affection, respect, admiration, charity, or like impulses. The
Company's intention, as reflected in the record before the Court,
was an appreciation for the services of its present and former
employees and the Company's desire to enhance the compensation of
its employees and retirees for their past services. Respondent
is sustained on this issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.