T.C. Summary Opinion 2004-102
UNITED STATES TAX COURT
ANNISA M. OWENS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14326-02S. Filed July 28, 2004.
Annisa M. Owens, pro se.
Alan H. Cooper, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for the year in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
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Respondent determined for 2000 a deficiency in petitioner's
Federal income tax of $2,245. After a concession by petitioner,1
the issue remaining for decision is whether money given to
petitioner by her supervisor constitutes a taxable bonus or a
tax-free gift.
Background
The stipulation of facts and the exhibits received into
evidence are incorporated herein by reference. Petitioner
resided in Redwood City, California, at the time the petition in
this case was filed.
During the year at issue, petitioner was employed as an
executive assistant at Fox Paine & Co., LLC (Fox Paine). On or
about December 10, 2000, petitioner received personal check No.
0435 in the amount of $7,500 from her supervisor, James R. Kroner
(Mr. Kroner). Petitioner's signature and account number appear
on the back of the check, which she deposited into her personal
account. Petitioner resigned from Fox Paine on December 29,
2000.
Fox Paine issued to petitioner a Form 1099-MISC,
Miscellaneous Income, reporting $5,000 in nonemployee
compensation. When respondent inquired about the payment, a Fox
Paine executive confirmed that the Form 1099-MISC should have
1
In the notice of deficiency, respondent determined that
petitioner failed to include in income a State income tax refund
of $843 from a prior year. Petitioner has conceded this issue.
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reported the full amount of $7,500. Petitioner timely filed her
Form 1040, U.S. Individual Income Tax Return, for 2000 but failed
to report the amount received from Mr. Kroner.
Petitioner does not dispute receiving the money. She merely
objects to its classification as a bonus and argues that it was a
gift from Mr. Kroner and therefore not includable in income.
At the end of the trial, respondent orally moved for leave
to conform the pleadings to the evidence under Rule 41(b).
Petitioner did not object.
Discussion
The resolution of the issue in this case does not depend on
which party has the burden of proof; therefore section 7491 does
not apply here.
1. Respondent's Motion
As a preliminary matter, the Court must determine whether
respondent's motion to conform the pleadings to the evidence
should be granted.
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Pursuant to section 6214(a) and Rule 41(b),2 respondent
moved to increase the amount of the deficiency. Respondent moves
to increase the deficiency because of the alleged error made by
Fox Paine when issuing the Form 1099-MISC to petitioner.
Rule 41(b)(2) permits the Court to grant a party's motion to
conform the pleadings to the evidence "freely when justice so
requires" provided the objecting party is not prejudiced by its
admission. Church of Scientology v. Commissioner, 83 T.C. 381,
469 (1984), affd. 823 F.2d 1310 (9th Cir. 1987).
The Court does not find that granting respondent's motion
would result in prejudice to petitioner. The parties agree that
petitioner received the full $7,500. Accordingly, respondent's
motion to conform the pleadings to the evidence so as to assert
an increased deficiency will be granted.
2
Rule 41(b)(2) provides:
(2) Other Evidence: If evidence is
objected to at the trial on the ground that
it is not within the issues raised by the
pleadings, then the Court may receive the
evidence and at any time allow the pleadings
to be amended to conform to the proof, and
shall do so freely when justice so requires
and the objecting party fails to satisfy the
Court that the admission of such evidence
would prejudice such party in maintaining
such party's position on the merits.
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2. Payment Petitioner Received
As a general rule, the value of property acquired by gift is
not includable in gross income. Sec. 102(a). Gifts are payments
made out of detached and disinterested generosity and not in
return for past services. Commissioner v. Duberstein, 363 U.S.
278, 285 (1960). Furthermore, a gift must be given out of
affection, respect, and admiration. Id.
In addition, section 102(c)(1) requires an employee to
include in his or her gross income "any amount transferred by or
for an employer to, or for the benefit of, an employee." Only in
"exceptional" circumstances should a transfer between an employer
and an employee be considered a gift in the statutory sense.
Commissioner v. Duberstein, supra at 287. If the gift is made
solely for personal reasons (such as a birthday or wedding
present) and is in no way related to the employment relationship,
and no anticipation of business benefit exists, then the gift may
qualify for section 102 exclusion treatment. Williams v.
Commissioner, T.C. Memo. 2003-97.
Only in situations where the relationship between the
employer and the employee is personal and the payment is made for
reasons unrelated to the work relationship may it be treated as a
gift. See Caglia v. Commissioner, T.C. Memo. 1989-143 (finding
that payments received by the taxpayer from her employer with
whom she traveled for personal pleasure were not taxable);
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Harrington v. Commissioner, T.C. Memo. 1958-194 (finding on the
basis of social activities and vacations a personal relationship
existed between the taxpayers and the husband's employers).
Petitioner is unable to establish that she had a
relationship with Mr. Kroner other than that of employer-
employee. Indeed, she testified that she did not have a
relationship with Mr. Kroner outside of the work environment.
Petitioner offered no evidence that would indicate that the
$7,500 was paid for any purpose other than to reward her for
excellent job performance. It appears to the Court that Mr.
Kroner was paying petitioner for the services she provided to him
as his executive assistant. The regulations expressly provide
that Christmas bonuses are included in the definition of
compensation. Sec. 1.61-2(a), Income Tax Regs.
The parties agree that petitioner received a check for
$7,500 from Mr. Kroner. Furthermore, the evidence indicates that
petitioner endorsed and deposited the check she received from Mr.
Kroner into her personal account. The Court holds that
petitioner is required to include the $7,500 in income.
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Reviewed and adopted as the report of the Small Tax Case
Division.
An order will be issued
granting respondent's motion
to conform the pleadings to
the evidence, and decision
will be entered under Rule
155.