U.S. Supreme Court Crane v. Commissioner, 331 U.S. 1 (1947) Crane v. Commissioner of Internal
Revenue No. 68 Argued December 11,
1946 Decided April 14,
1947 331 U.S.
1 CERTIORARI TO THE CIRCUIT COURT OF
APPEALS FOR THE SECOND
CIRCUIT Syllabus 1. Under § 113(a)(5) of the Revenue Act of 1938, the "unadjusted
basis" for determining gain or loss on the sale of physical
property acquired by bequest subject to an unassumed mortgage is
the value of the property undiminished by the amount of the
mortgage. Pp. 331 U. S.
5 -11.

															The word "property," as used in that section, means a physical
thing which is a subject of ownership or the owner's legal rights
therein, and not merely his "equity" after deducting the amount of
mortgages or other liens. Pp. 331 U. S.
5 -11.

															2. Under § 113(b)(1)(B) of the Revenue Act of 1938, a taxpayer
who acquired an apartment house by bequest subject to an unassumed
mortgage equal to the value thereof, operated it for several years,
and sold it for a price slightly in excess of the amount of the
mortgage, was entitled to deductions for depreciation on the
building, and the "adjusted basis" for determining gain or loss on
the sale is to be determined by deducting such depreciation
allowances from the value of the property at the time of
acquisition. Pp. 331 U. S.
11 -12.

															3. Under § 111(b) of the Revenue Act of 1938, the "amount
realized" on a sale of property for cash subject to an existing
mortgage is the amount of the cash realized plus the amount of the
mortgage, Page 331 U. S. 2 even though the seller had acquired the property subject to the
mortgage, which he never assumed, and the buyer neither assumed nor
paid the mortgage. Pp. 331 U. S.
12 -14.

															4. On an appeal from a decision of the Tax Court, the Circuit
Court of Appeals had jurisdiction to review determinations by the
Tax Court that "property" as used in § 113(a) and related sections
of the Revenue Act of 1938, means "equity," and that the amount of
a mortgage subject to which property is sold is not the measure of
a benefit realized within the meaning of § 111(b), since these
determinations announced rules of general applicability on
clear-cut questions of law. P. 331 U. S. 15 .

															5. As here construed, the Revenue Act of 1938 does not tax
something which is not "income" within the meaning of the Sixteenth
Amendment. Pp. 331 U. S.
15 -16.

															153 F.2d 504 affirmed.

															The Tax Court expunged part of a deficiency determined by the
Commissioner of Internal Revenue on account of the income tax on a
gain realized on the sale of an apartment house which had been
acquired by the taxpayer by bequest subject to an unassumed
mortgage. 3 T.C. 585. The Circuit Court of Appeals reversed. 153
F.2d 504. This Court granted certiorari. 328 U.S. 826. Affirmed, p. 331 U. S. 16 .

															MR. CHIEF JUSTICE VINSON delivered the opinion of the Court.

															The question here is how a taxpayer who acquires depreciable
property subject to an unassumed mortgage, holds it for a period,
and finally sells it still so encumbered, must compute her taxable
gain. Page 331 U. S. 3 Petitioner was the sole beneficiary and the executrix of the
will of her husband, who died January 11, 1932. He then owned an
apartment building and lot subject to a mortgage, [ Footnote 1 ] which secured a principal debt of
$255,000.00 and interest in default of $7,042.50. As of that date,
the property was appraised for federal estate tax purposes at a
value exactly equal to the total amount of this encumbrance.
Shortly after her husband's death, petitioner entered into an
agreement with the mortgagee whereby she was to continue to operate
the property -- collecting the rents, paying for necessary repairs,
labor, and other operating expenses, and reserving $200.00 monthly
for taxes -- and was to remit the net rentals to the mortgagee.
This plan was followed for nearly seven years, during which period
petitioner reported the gross rentals as income, and claimed and
was allowed deductions for taxes and operating expenses paid on the
property, for interest paid on the mortgage, and for the physical
exhaustion of the building. Meanwhile, the arrearage of interest
increased to $15,857.71. On November 29, 1938, with the mortgagee
threatening foreclosure, petitioner sold to a third party for
$3,000.00 cash, subject to the mortgage, and paid $500.00 expenses
of sale.

															Petitioner reported a taxable gain of $1,250.00. Her theory was
that the "property" which she had acquired in 1932 and sold in 1938
was only the equity, or the excess in the value of the apartment
building and lot over the amount of the mortgage. This equity was
of zero value when she acquired it. No depreciation could be taken
on a zero value. [ Footnote 2 ]
Neither she nor her vendee ever assumed Page 331 U. S. 4 the mortgage, so, when she sold the equity, the amount she
realized on the sale was the net cash received, or $2,500.00. This
sum less the zero basis constituted her gain, of which she reported
half as taxable on the assumption that the entire property was a
"capital asset." [ Footnote
3 ]

															The Commissioner, however, determined that petitioner realized a
net taxable gain of $23,767.03. His theory was that the "property"
acquired and sold was not the equity, as petitioner claimed, but
rather the physical property itself, or the owner's rights to
possess, use, and dispose of it, undiminished by the mortgage. The
original basis thereof was $262,042.50, its appraised value in
1932. Of this value, $55,000.00 was allocable to land and
$207,042.50 to building. [ Footnote
4 ] During the period, that petitioner held the property, there
was an allowable depreciation of $28,045.10 on the building,
[ Footnote 5 ] so that the
adjusted basis of the building at the time of sale was $178,997.40.
The amount realized on the sale was said to include not only the
$2,500.00 net cash receipts, but also the principal amount
[ Footnote 6 ] of the mortgage
subject to which the property was sold, both totaling $257,500.00.
The selling price was allocable in the proportion, $54,471.15 to
the land and $203,028.85 to the building. [ Footnote 7 ] The Commissioner agreed that the land
was Page 331 U. S. 5 a "capital asset," but thought that the building was not.
[ Footnote 8 ] Thus, he
determined that petitioner sustained a capital loss of $528.85 on
the land, of which 50% or $264.42 was taken into account, and an
ordinary gain of $24.031.45 on the building, or a net taxable gain
as indicated.

															The Tax Court agreed with the Commissioner that the building was
not a "capital asset." In all other respects, it adopted
petitioner's contentions, and expunged the deficiency. [ Footnote 9 ] Petitioner did not appeal
from the part of the ruling adverse to her, and these questions are
no longer at issue. On the Commissioner's appeal, the Circuit Court
of Appeals reversed, one judge dissenting. [ Footnote 10 ] We granted certiorari because of
the importance of the questions raised as to the proper
construction of the gain and loss provisions of the Internal
Revenue Code. [ Footnote
11 ]

															The 1938 Act, [ Footnote
12 ] § 111(a), defines the gain from "the sale or other
disposition of property" as "the excess of the amount realized
therefrom over the adjusted basis provided in section 113(b). . .
." It proceeds, § 111(b), to define "the amount realized from the
sale or other disposition of property" as "the sum of any money
received plus Page 331 U. S. 6 the fair market value of the property (other than money)
received." Further, in § 113(b), the "adjusted basis for
determining the gain or loss from the sale or other disposition of
property" is declared to be

															"the basis determined under subsection (a), adjusted . . .
[(1)(B)]. . . for exhaustion, wear and tear, obsolescence,
amortization . . . to the extent allowed (but not less than the
amount allowable). . . ."

															The basis under subsection (a) "if the property was acquired by
. . . devise . . . or by the decedent's estate from the decedent,"
§ 113(a)(5), is "the fair market value of such property at the time
of such acquisition."

															Logically, the first step under this scheme is to determine the
unadjusted basis of the property, under § 113(a)(5), and the
dispute in this case is as to the construction to be given the term
"property." If "property," as used in that provision, means the
same thing as "equity," it would necessarily follow that the basis
of petitioner's property was zero, as she contends. If, on the
contrary, it means the land and building themselves, or the owner's
legal rights in them, undiminished by the mortgage, the basis was
$262,042.50.

															We think that the reasons for favoring one of the latter
constructions are of overwhelming weight. In the first place, the
words of statutes -- including revenue acts -- should be
interpreted where possible in their ordinary, everyday senses.
[ Footnote 13 ] The only
relevant definitions of "property" to be found in the principal
standard dictionaries [ Footnote
14 ] are the two favored by the Commissioner -- i.e., either that "property" is the physical thing which is a subject of
ownership or that it is the aggregate of the owner's rights to
control and dispose of that thing. Page 331 U. S. 7 "Equity" is not given as a synonym, nor do either of the
foregoing definitions suggest that it could be correctly so used.
Indeed, "equity" is defined as "the value of a property . . . above
the total of the liens. . . ." [ Footnote 15 ] The contradistinction could hardly be more
pointed. Strong countervailing considerations would be required to
support a contention that Congress, in using the word "property,"
meant "equity," or that we should impute to it the intent to convey
that meaning. [ Footnote
16 ]

															In the second place, the Commission's position has the approval
of the administrative construction of § 113(a)(5). With respect to
the valuation of property under that section, Reg. 101, Art.
113(a)(5)-1, promulgated under the 1938 Act, provided that "the
value of property as of the date of the death of the decedent as
appraised for the purpose of the federal estate tax . . . shall be
deemed to be its fair market value. . . ." The land and building
here involved were so appraised in 1932, and their appraised value
-- $262,042.50 -- was reported by petitioner as part of the gross
estate. This was in accordance with the estate tax law [ Footnote 17 ] and regulations,
[ Footnote 18 ] which had
always required that the value of decedent's property, undiminished
by liens, be so appraised and returned, and that mortgages be
separately deducted in computing the net estate. [ Footnote 19 ] As the quoted provision of the
Regulations Page 331 U. S. 8 has been in effect since 1918, [ Footnote 20 ] and, as the relevant statutory provision has
been repeatedly reenacted since then in substantially the same
form, [ Footnote 21 ] the
former may itself now be considered to have the force of law.
[ Footnote 22 ]

															Moreover, in the many instances in other parts of the Act in
which Congress has used the word "property," or expressed the idea
of "property" or "equity," we find no instances of a misuse of
either word or of a confusion of the ideas. [ Footnote 23 ] In some parts of the Act other than
the gain and loss sections, we find "property" where it is
unmistakably used in its ordinary sense. [ Footnote 24 ] On the other hand, where either Congress
or the Treasury intended to convey the meaning of "equity," it did
so by the use of appropriate language. [ Footnote 25 ] Page 331 U. S. 9 A further reason why the word "property" in § 113(a) should not
be construed to mean "equity" is the bearing such construction
would have on the allowance of deductions for depreciation and on
the collateral adjustments of basis.

															Section 23(1) permits deduction from gross income of "a
reasonable allowance for the exhaustion, wear and tear of property.
. . ." Sections 23(n) and 114(a) declare that the "basis upon which
depletion exhaustion, wear and tear . . . are to be allowed" is the
basis "provided in section 113(b) for the purpose of determining
the gain upon the sale" of the property, which is the § 113(a)
basis "adjusted . . . for exhaustion, wear and tear . . . to the
extent allowed (but not less than the amount allowable). . . ."

															Under these provisions, if the mortgagor's equity were the §
113(a) basis, it would also be the original basis from which
depreciation allowances are deducted. If it is, and if the amount
of the annual allowances were to be computed on that value, as
would then seem to be required, [ Footnote 26 ] they will represent only a fraction of the
cost of the corresponding physical exhaustion, and any recoupment
by the mortgagor of the remainder of that cost can be effected only
by the reduction of his taxable gain in the year of sale. [ Footnote 27 ] If, however, the amount
of the annual allowances Page 331 U. S. 10 were to be computed on the value of the property, and then
deducted from an equity basis, we would in some instances have to
accept deductions from a minus basis or deny deductions altogether.
[ Footnote 28 ] The
Commissioner also argues that taking the mortgagor's equity as the
§ 113(a) basis would require the basis to be changed with each
payment on the mortgage, [ Footnote 29 ] and that the attendant problem of repeatedly
recomputing basis and annual allowances would be a tremendous
accounting burden on both the Commissioner and the taxpayer.
Moreover, the mortgagor would acquire control over the timing of
his depreciation allowances.

															Thus, it appears that the applicable provisions of the Act
expressly preclude an equity basis, and the use of it is contrary
to certain implicit principles of income tax depreciation, and
entails very great administrative difficulties. [ Footnote 30 ] It may be added that the
Treasury has never furnished a guide through the maze of problems
that arise in connection with depreciating an equity basis, but, on
the contrary, has consistently permitted the amount of depreciation
allowances to be computed on the full value of the property, and
subtracted from it as a basis. Surely, Page 331 U. S. 11 Congress' long continued acceptance of this situation gives it
full legislative endorsement. [ Footnote 31 ]

															We conclude that the proper basis under § 113(a)(5) is the value
of the property, undiminished by mortgages thereon, and that the
correct basis here was $262,042.50. The next step is to ascertain
what adjustments are required under § 113(b). As the depreciation
rate was stipulated, the only question at this point is whether the
Commissioner was warranted in making any depreciation adjustments
whatsoever.

															Section 113(b)(1)(B) provides that

															"proper adjustment in respect of the property shall in all cases
be made . . . for exhaustion, wear and tear . . . to the extent
allowed (but not less than the amount allowable.) . . ."

															The Tax Court found on adequate evidence that the apartment
house was property of a kind subject to physical exhaustion, that
it was used in taxpayer's trade or business, and consequently that
the taxpayer would have been entitled to a depreciation allowance
under § 23(1), except that, in the opinion of that Court, the basis
of the property was zero, and it was thought that depreciation
could not be taken on a zero basis. As we have just decided that
the correct basis of the property was not zero, but $262,042.50, we
avoid this difficulty, and conclude that an adjustment should be
made as the Commissioner determined.

															Petitioner urges, to the contrary, that she was not entitled to
depreciation deductions, whatever the basis of the property,
because the law allows them only to one who actually bears the
capital loss, [ Footnote 32 ]
and here the loss was not hers but the mortgagee's. We do not see,
however, that she has established her factual premise. There was no
finding of the Tax Court to that effect, nor to the effect Page 331 U. S. 12 that the value of the property was ever less than the amount of
the lien. Nor was there evidence in the record, or any indication
that petitioner could produce evidence, that this was so. The facts
that the value of the property was only equal to the lien in 1932,
and that, during the next six and one-half years, the physical
condition of the building deteriorated and the amount of the lien
increased, are entirely inconclusive, particularly in the light of
the buyer's willingness in 1938 to take subject to the increased
lien and pay a substantial amount of cash to boot. Whatever may be
the rule as to allowing depreciation to a mortgagor on property in
his possession which is subject to an unassumed mortgage and
clearly worth less than the lien, we are not faced with that
problem, and see no reason to decide it now.

															At last we come to the problem of determining the "amount
realized" on the 1938 sale. Section 111(b), it will be recalled,
defines the "amount realized" from "the sale . . . of property" as
"the sum of any money received plus the fair market value of the
property (other than money) received," and § 111(a) defines the
gain on "the sale . . . of property" as the excess of the amount
realized over the basis. Quite obviously, the word "property," used
here with reference to a sale, must mean "property" in the same
ordinary sense intended by the use of the word with reference to
acquisition and depreciation in § 113, both for certain of the
reasons stated heretofore in discussing its meaning in § 113 and
also because the functional relation of the two sections requires
that the word mean the same in one section that it does in the
other. If the "property" to be valued on the date of acquisition is
the property free of liens, the "property" to be priced on a
subsequent sale must be the same thing. [ Footnote 33 ] Page 331 U. S. 13 Starting from this point, we could not accept petitioner's
contention that the $2,500.00 net cash was all she realized on the
sale except on the absurdity that she sold a quarter of a million
dollar property for roughly one percent of its value, and took a 99
percent loss. Actually, petitioner does not urge this. She argues,
conversely, that, because only $2,500.00 was realized on the sale,
the "property" sold must have been the equity only, and that
consequently we are forced to accept her contention as to the
meaning of "property" in § 113. We adhere, however, to what we have
already said on the meaning of "property," and we find that the
absurdity is avoided by our conclusion that the amount of the
mortgage is properly included in the "amount realized" on the
sale.

															Petitioner concedes that, if she had been personally liable on
the mortgage and the purchaser had either paid or assumed it, the
amount so paid or assumed would be considered a part of the "amount
realized" within the meaning of § 111(b). [ Footnote 34 ] The cases so deciding have already
repudiated the notion that there must be an actual receipt by the
seller himself of "money" or "other property," in their narrowest
senses. It was thought to be decisive that one section of the Act
must be construed so as not to defeat the intention of another or
to frustrate the Act as a whole, [ Footnote 35 ] and that the taxpayer was the "beneficiary"
of the payment in "as real and substantial (a sense) as if the
money had been paid it and then paid over by it to its creditors."
[ Footnote 36 ] Page 331 U. S. 14 Both these points apply to this case. The first has been
mentioned already. As for the second, we think that a mortgagor,
not personally liable on the debt, who sells the property subject
to the mortgage and for additional consideration, realizes a
benefit in the amount of the mortgage as well as the boot.
[ Footnote 37 ] If a purchaser
pays boot, it is immaterial as to our problem whether the mortgagor
is also to receive money from the purchaser to discharge the
mortgage prior to sale, or whether he is merely to transfer subject
to the mortgage -- it may make a difference to the purchaser and to
the mortgagee, but not to the mortgagor. Or, put in another way, we
are no more concerned with whether the mortgagor is, strictly
speaking, a debtor on the mortgage than we are with whether the
benefit to him is, strictly speaking, a receipt of money or
property. We are, rather, concerned with the reality that an owner
of property, mortgaged at a figure less than that at which the
property will sell, must and will treat the conditions of the
mortgage exactly as if they were his personal obligations.
[ Footnote 38 ] If he
transfers subject to the mortgage, the benefit to him is as real
and substantial as if the mortgage were discharged, or as if a
personal debt in an equal amount had been assumed by another.

															Therefore, we conclude that the Commissioner was right in
determining that petitioner realized $257,500.00 on the sale of
this property. Page 331 U. S. 15 The Tax Court's contrary determinations, that "property," as
used in § 113(a) and related sections, means "equity," and that the
amount of a mortgage subject to which property is sold is not the
measure of a benefit realized, within the meaning of § 111(b),
announced rules of general applicability on clear-cut questions of
law. [ Footnote 39 ] The
Circuit Court of Appeals therefore had jurisdiction to review them.
[ Footnote 40 ]

															Petitioner contends that the result we have reached taxes her on
what is not income within the meaning of the Sixteenth Amendment.
If this is because only the direct receipt of cash is thought to be
income in the constitutional sense, her contention is wholly
without merit. [ Footnote 41 ]
If it is because the entire transaction is thought to have been,
"by all dictates of common sense . . . a ruinous disaster," as it
was termed in her brief, we disagree with her premise. She was
entitled to depreciation deductions for a period of nearly seven
years, and she actually took them in almost the allowable amount.
The crux of this case, really, is whether the law permits her to
exclude allowable deductions from consideration in computing gain.
[ Footnote 42 ] We have Page 331 U. S. 16 already showed that, if it does, the taxpayer can enjoy a double
deduction, in effect, on the same loss of assets. The Sixteenth
Amendment does not require that result any more than does the Act
itself. Affirmed. [ Footnote 1 ]

															The record does not show whether he was personally liable for
the debt.

															[ Footnote 2 ]

															This position is, of course, inconsistent with her practice in
claiming such deductions in each of the years the property was
held. The deductions so claimed and allowed by the Commissioner
were in the total amount of $25,500.00.

															[ Footnote 3 ] See § 117(a)(b), Revenue Act of 1938, c. 289, 52 Stat.
447. Under this provision, only 50% of the gain realized on the
sale of a "capital asset" need be taken into account, if the
property had been held more than two years.

															[ Footnote 4 ]

															The parties stipulated as to the relative parts of the 1932
appraised value and of the 1938 sales price which were allocable to
land and building.

															[ Footnote 5 ]

															The parties stipulated that the rate of depreciation applicable
to the building was 2% per annum.

															[ Footnote 6 ]

															The Commissioner explains that only the principal amount, rather
than the total present debt secured by the mortgage, was deemed to
be a measure of the amount realized, because the difference was
attributable to interest due, a deductible item.

															[ Footnote 7 ] See supra, note
4 [ Footnote 8 ] See § 117(a)(1), Revenue Act of 1938, supra. [ Footnote 9 ]

															3 T.C. 585. The Court held that the building was not a "capital
asset" within the meaning of § 117(a), and that the entire gain on
the building had to be taken into account under § 117(b), because
it found that the building was of a character subject to physical
exhaustion, and that petitioner had used it in her trade or
business.

															But because the Court accepted petitioner's theory that the
entire property had a zero basis, it held that she was not entitled
to the 1938 depreciation deduction on the building which she had
inconsistently claimed.

															For these reasons, it did not expunge the deficiency in its
entirety.

															[ Footnote 10 ]

															153 F.2d 504.

															[ Footnote 11 ]

															328 U.S. 826.

															[ Footnote 12 ]

															All subsequent references to a revenue act are to this Act
unless otherwise indicated. The relevant parts of the gain and loss
provisions of the Act and Code are identical.

															[ Footnote 13 ] Old Colony R. Co. v. Commissioner, 284 U.
S. 552 , 284 U. S.
560 .

															[ Footnote 14 ] See Webster's New International Dictionary,
Unabridged,2d Ed.; Funk & Wagnalls' New Standard Dictionary;
Oxford English Dictionary.

															[ Footnote 15 ] See Webster's New International Dictionary, supra. [ Footnote 16 ] Crooks v. Harrelson, 282 U. S. 55 , 282 U. S.
59 .

															[ Footnote 17 ] See §§ 202 and 203(a)(1), Revenue Act of 1916; §§ 402
and 403(a)(1), Revenue Acts of 1918 and 1921; §§ 302, 303(a)(1),
Revenue Acts of 1924 and 1926; § 805, Revenue Act of 1932.

															[ Footnote 18 ] See Reg. 37, Arts, 13, 14, and 47; Reg. 63, Arts. 12,
13, and 41; Reg. 68, Arts. 11, 13, and 38; Reg. 70, Arts 11, 13,
and 38; Reg. 80, Arts. 11, 13, and 38.

															[ Footnote 19 ] See City Bank Farmers' Trust Co. v. Bowers, 68 F.2d
909, cert. denied, 292 U.S. 644; Rodiek v.
Helvering, 87 F.2d 328; Adriance v. Higgins, 113 F.2d
1013.

															[ Footnote 20 ] See also Reg. 45, Art. 1562; Reg. 62, Art. 1563; Reg.
65, Art. 1594; Reg. 69, Art. 1594; Reg. 74, Art. 596; Reg. 77, Art.
596; Reg. 86, Art. 113(a)(5)-1(c); Reg. 94, Art. 113(a)(5)-1(c);
Reg. 103, § 19.113(a)(5)-1(c); Reg. 111, § 29.113(a)(5)-1(c).

															[ Footnote 21 ]

															§ 202(a)(3), Revenue Act of 1921; § 204(a)(5), Revenue Act of
1924; § 204(a)(5), Revenue Act of 1926; § 113(a)(5), Revenue Act of
1928; § 113(a)(5), Revenue Act of 1932; § 113(a)(5), Revenue Act of
1934; § 113(a)(5), Revenue Act of 1936; § 113(a)(5), Revenue Act of
1938; § 113(a)(5), Internal Revenue Code.

															[ Footnote 22 ] Helvering v. R. J. Reynolds Co., 306 U.
S. 110 , 306 U. S.
114 .

															[ Footnote 23 ] Cf. Helvering v. Stockholmes Enskilda Bank, 293 U. S. 84 , 293 U. S.
87 .

															[ Footnote 24 ]

															Sec. 23(a)(1) permits the deduction from gross income of

															"rentals . . . required to be made as a condition to the
continued use . . . for purposes of the trade or business, of
property . . . in which he [the taxpayer] has no equity."

															Sec. 23(1) permits the deduction from gross income of "a
reasonable allowance for the exhaustion, wear, and tear of property
used in the trade or business. . . ." See also § 303(a)(1), Revenue Act of 1926, c. 27, 44
Stat. 9; § 805, Revenue Act of 1932, c. 209, 47 Stat. 280.

															[ Footnote 25 ] See § 23(a)(1), supra, note 24; § 805, Revenue
Act of 1932, supra, note 24; § 3482 I.R.C.; Reg. 105, § 81.38. This provision
of the Regulations, first appearing in 1937, T.D. 4729, 1937-1
Cum.Bull. 284, 289, permitted estates which were not liable on
mortgages applicable to certain of decedent's property to return
"only the value of the equity of redemption (or value of the
property, less the indebtedness). . . ."

															[ Footnote 26 ]

															Secs. 23(n) and 114(a), in defining the "basis upon which"
depreciation is "to be allowed," do not distinguish between basis
as the minuend from which the allowances are to be deducted, and as
the dividend from which the amount of the allowance is to be
computed. The Regulations indicate that the basis of property is
the same for both purposes. Reg. 101, Art. 23(1)-4, 5.

															[ Footnote 27 ]

															This is contrary to Treasury practice, and to Reg. 101, Art.
23(1)-5, which provides in part:

															"The capital sum to be recovered shall be charged off over the
useful life of the property, either in equal annual installments or
in accordance with any other recognized trade practice, such as an
apportionment of the capital sum over units of production." See Detroit Edison Co. v. Commissioner, 319 U. S.
98 , 319 U. S.
101 .

															[ Footnote 28 ]

															So long as the mortgagor remains in possession, the mortgagee
cannot take depreciation deductions, even if he is the one who
actually sustains the capital loss, as § 23(1) allows them only on
property "used in the trade or business."

															[ Footnote 29 ]

															Sec. 113(b)(1)(A) requires adjustment of basis "for expenditures
. . . properly chargeable to capital account. . . ."

															[ Footnote 30 ]

															Obviously we are not considering a situation in which a taxpayer
has acquired and sold an equity of redemption only -- i.e., a right to redeem the property without a right to
present possession. In that situation, the right to redeem would
itself be the aggregate of the taxpayer's rights and would
undoubtedly constitute "property" within the meaning of § 113(a).
No depreciation problems would arise. See note 28 [ Footnote 31 ] See note 22 [ Footnote 32 ] See Helvering v. Lazarus & Co., 308 U.
S. 252 ; Duffy v. Central R. Co., 268 U. S.
55 , 268 U. S. 64 .

															[ Footnote 33 ] See Maguire v. Commissioner, 313 U. S.
1 , 313 U. S. 8 .

															We are not troubled by petitioner's argument that her contract
of sale expressly provided for the conveyance of the equity only.
She actually conveyed title to the property, and the buyer took the
same property that petitioner had acquired in 1932 and used in her
trade or business until its sale.

															[ Footnote 34 ] United States v. Hendler, 303 U.
S. 564 ; Brons Hotels, Inc., 34 B.T.A. 376; Walter F. Haass, 37 B.T.A. 948. See Douglas v.
Willcutts, 296 U. S. 1 , 296 U. S. 8 .

															[ Footnote 35 ] See Brons Hotels, Inc., supra, 34 B.T.A. at 381.

															[ Footnote 36 ] See United States v. Hendler, supra, at 303 U. S.
566 .

															[ Footnote 37 ]

															Obviously, if the value of the property is less than the amount
of the mortgage, a mortgagor who is not personally liable cannot
realize a benefit equal to the mortgage. Consequently, a different
problem might be encountered where a mortgagor abandoned the
property or transferred it subject to the mortgage without
receiving boot. That is not this case.

															[ Footnote 38 ]

															For instance, this petitioner returned the gross rentals as her
own income, and out of them paid interest on the mortgage, on which
she claimed and was allowed deductions. See Reg. 77, Art.
141; Reg. 86, Art. 23(b)-1; Reg. 94, Art. 23(b)-1; Reg. 101, Art.
23(b)-1.

															[ Footnote 39 ] See Commissioner v. Wilcox, 327 U.
S. 404 , 327 U. S. 410 ; Bingham's Trust v. Commissioner, 325 U.
S. 365 , 325 U. S.
369 -372. Cf. John Kelley Co. v. Commissioner, 326 U. S. 521 , 326 U. S. 527 ; Dobson v. Commissioner, 320 U. S. 489 .

															[ Footnote 40 ] Ibid; see also § 1141(a) and (c), I.R.C.

															[ Footnote 41 ] Douglas v. Willcutts, supra, at 296 U. S. 9 ; Burnet v. Wells, 289 U. S. 670 , 289 U. S.
677 .

															[ Footnote 42 ]

															In the course of the argument, some reference was made, as by
analogy, to a situation in which a taxpayer acquired by devise
property subject to a mortgage in an amount greater than the then
value of the property, and later transferred it to a third person,
still subject to the mortgage, and for a cash boot. Whether or not
the difference between the value of the property on acquisition and
the amount of the mortgage would in that situation constitute
either statutory or constitutional income is a question which is
different from the one before us, and which we need not presently
answer.

															MR. JUSTICE JACKSON, dissenting.

															The Tax Court concluded that this taxpayer acquired only an
equity worth nothing. The mortgage was in default, the mortgage
debt was equal to the value of the property, and possession by the
taxpayer was forfeited and terminable immediately by foreclosure,
and perhaps by a receiver pendente lite. Arguments can be
advanced to support the theory that the taxpayer received the whole
property, and thereupon came to owe the whole debt. Likewise, it is
argued that, when she sold, she transferred the entire value of the
property and received release from the whole debt. But we think
these arguments are not so conclusive that it was not within the
province of the Tax Court to find that she received an equity which
at that time had a zero value. Dobson v. Commissioner, 320 U. S. 489 ; Commissioner v. Scottish American Investment Co., Ltd., 323 U. S. 119 . The
taxpayer never became personally liable for the debt, and hence,
when she sold, she was released from no debt. The mortgage debt was
simply a subtraction from the value of what she did receive, and
from what she sold. The subtraction left her nothing when she
acquired it, and a small margin when she sold it. She acquired a
property right equivalent to an equity of redemption and sold the
same thing. It was the "property" bought and sold as the Tax Court
considered it to be under the Revenue Laws. We are not required in
this case to decide whether depreciation was properly taken, for
there is no issue about it here. Page 331 U. S. 117 We would reverse the Court of Appeals and sustain the decision
of the Tax Court.

															MR. JUSTICE FRANKFURTER and MR. JUSTICE DOUGLAS join in this
opinion.


U.S. Supreme Court Commissioner v. Duberstein, 363
U.S. 278 (1960) Commissioner v.
Duberstein No. 376 Argued March 23, 1960 Decided June 13, 1960 363
U.S. 278 ast|>* 363
U.S. 278 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SIXTH
CIRCUIT Syllabus 1. This Court rejects the Government's suggestion that it
promulgate a new "test" to serve as a standard to be applied by the
lower courts and by the Tax Court in dealing with numerous cases
involving the question what is a "gift" excludable from income
under the Internal Revenue Code, since the governing principles are
necessarily general, and have already been spelled out in the
opinions of this Court. Pp. 363 U. S.
284 -286.

															2. The conclusion whether a transfer amounts to a "gift" is one
that must be reached on consideration of all the factors. While the
principles urged by the Government may, in nonabsolute form as
crystallizations of experience, prove persuasive to the trier of
facts in a particular case, they cannot be laid down as a matter of
law. Pp. 363 U. S.
287 -289.

															3. Determination in each individual case as to whether the
transaction in question was a "gift" must be based ultimately on
the application of the factfinding tribunal's experience with the
mainsprings of human conduct to the totality of the facts in the
case, and appellate review of the conclusion reached by the
fact-finding tribunal must be quite restricted. Pp. 363 U. S.
289 -291.

															4. In No. 376, Duberstein, an individual taxpayer, gave to a
business corporation, upon request, the names of potential
customers. The information proved valuable, and the corporation
reciprocated by giving Duberstein a Cadillac automobile, charging
the cost thereof as a business expense on its own corporate income
tax return. The Tax Court concluded that the car was not a "gift"
excludable from income under § 22(b)(3) of the Internal Revenue
Code of 1939. Held: on the record in this case, it cannot be said Page 363 U. S. 279 that the Tax Court's conclusion was "clearly erroneous," and the
Court of Appeals erred in reversing its judgment. Pp. 363 U. S.
279 -281, 363 U. S.
291 -292.

															5. In No. 546, Stanton, upon resigning as comptroller of a
church corporation and as president of its wholly owned subsidiary
created to manage its extensive real estate holdings, was given "a
gratuity" of $20,000 "in appreciation of" his past services. The
Commissioner assessed an income tax deficiency against him for
failure to include this amount in his gross income. Stanton paid
the deficiency and sued in a Federal District Court for a refund.
The trial judge, sitting without a jury, made the simple finding
that the payment was a "gift," and entered judgment for Stanton.
The Court of Appeals reversed. Held: the finding of the District Court was inadequate;
the judgment of the Court of Appeals is vacated, and the case is
remanded to the District Court for further proceedings. Pp. 363 U. S.
281 -283, 363 U. S.
292 -293.

															265 F.2d 28 reversed.

															268 F.2d 727, judgment vacated and cause remanded.

															MR. JUSTICE BRENNAN delivered the opinion of the Court.

															These two cases concern the provision of the Internal Revenue
Code which excludes from the gross income of an income taxpayer
"the value of property acquired by Page 363 U. S. 280 gift." [ Footnote 1 ] They
pose the frequently recurrent question whether a specific transfer
to a taxpayer in fact amounted to a "gift" to him within the
meaning of the statute. The importance to decision of the facts of
the cases requires that we state them in some detail.

															No. 376, Commissioner v. Duberstein. The taxpayer,
Duberstein, [ Footnote 2 ] was
president of the Duberstein Iron & Metal Company, a corporation
with headquarters in Dayton, Ohio. For some years, the taxpayer's
company had done business with Mohawk Metal Corporation, whose
headquarters were in New York City. The president of Mohawk was one
Berman. The taxpayer and Berman had generally used the telephone to
transact their companies' business with each other, which consisted
of buying and selling metals. The taxpayer testified, without
elaboration, that he knew Berman "personally," and had known him
for about seven years. From time to time in their telephone
conversations, Berman would ask Duberstein whether the latter knew
of potential customers for some of Mohawk's products in which
Duberstein's company itself was not interested. Duberstein provided
the names of potential customers for these items.

															One day in 1951, Berman telephoned Duberstein and said that the
information Duberstein had given him had proved so helpful that he
wanted to give the latter a present. Duberstein stated that Berman
owed him nothing. Berman said that he had a Cadillac as a gift for
Duberstein, and that the latter should send to New York for it;
Berman insisted that Duberstein accept the car, and the latter
finally did so, protesting, however, that Page 363 U. S. 281 he had not intended to be compensated for the information. At
the time, Duberstein already had a Cadillac and an Oldsmobile, and
felt that he did not need another car. Duberstein testified that he
did not think Berman would have sent him the Cadillac if he had not
furnished him with information about the customers. It appeared
that Mohawk later deducted the value of the Cadillac as a business
expense on its corporate income tax return.

															Duberstein did not include the value of the Cadillac in gross
income for 1951, deeming it a gift. The Commissioner asserted a
deficiency for the car's value against him, and, in proceedings to
review the deficiency, the Tax Court affirmed the Commissioner's
determination. It said that

															"The record is significantly barren of evidence revealing any
intention on the part of the payor to make a gift. . . . The only
justifiable inference is that the automobile was intended by the
payor to be remuneration for services rendered to it by
Duberstein."

															The Court of Appeals for the Sixth Circuit reversed. 265 F.2d
28, 30.

															No. 546, Stanton v. United States. The taxpayer,
Stanton, had been for approximately 10 years in the employ of
Trinity Church in New York City. He was comptroller of the Church
corporation, and president of a corporation, Trinity Operating
Company, the church set up as a fully owned subsidiary to manage
its real estate holdings, which were more extensive than simply the
church property. His salary by the end of his employment there in
1942 amounted to $22,500 a year. Effective November 30, 1942, he
resigned from both positions to go into business for himself. The
Operating Company's directors, who seem to have included the rector
and vestrymen of the church, passed the following resolution upon
his resignation:

															"Be it resolved that, in appreciation of the services rendered
by Mr. Stanton . . . , a gratuity is hereby awarded to him of
Twenty Thousand Dollars, payable to him in equal instalments of Two
Thousand Dollars Page 363 U. S. 282 at the end of each and every month commencing with the month of
December, 1942; provided that, with the discontinuance of his
services, the Corporation of Trinity Church is released from all
rights and claims to pension and retirement benefits not already
accrued up to November 30, 1942."

															The Operating Company's action was later explained by one of its
directors as based on the fact that

															"Mr. Stanton was liked by all of the Vestry personally. He had a
pleasing personality. He had come in when Trinity's affairs were in
a difficult situation. He did a splendid piece of work, we felt.
Besides that . . . , he was liked by all of the members of the
Vestry personally."

															And by another:

															"[W]e were all unanimous in wishing to make Mr. Stanton a gift.
Mr. Stanton had loyally and faithfully served Trinity in a very
difficult time. We thought of him in the highest regard. We
understood that he was going in business for himself. We felt that
he was entitled to that evidence of good will."

															On the other hand, there was a suggestion of some ill feeling
between Stanton and the directors, arising out of the recent
termination of the services of one Watkins, the Operating Company's
treasurer, whose departure was evidently attended by some acrimony.
At a special board meeting on October 28, 1942, Stanton had
intervened on Watkins' side and asked reconsideration of the
matter. The minutes reflect that

															"resentment was expressed as to the 'presumptuous' suggestion
that the action of the Board, taken after long deliberation, should
be changed."

															The Board adhered to its determination that Watkins be separated
from employment, giving him an opportunity to resign rather than be
discharged. At another special meeting two days later, it was
revealed that Watkins had not resigned; the previous resolution
terminating his services was then viewed as effective, and the
Board voted the payment of six months' salary Page 363 U. S. 283 to Watkins in a resolution similar to that quoted in regard to
Stanton, but which did not use the term "gratuity." At the meeting,
Stanton announced that, in order to avoid any such embarrassment or
question at any time as to his willingness to resign if the Board
desired, he was tendering his resignation. It was tabled, though
not without dissent. The next week, on November 5, at another
special meeting, Stanton again tendered his resignation, which this
time was accepted.

															The "gratuity" was duly paid. So was a smaller one to Stanton's
(and the Operating Company's) secretary, under a similar
resolution, upon her resignation at the same time. The two
corporations shared the expense of the payments. There was
undisputed testimony that there were in fact no enforceable rights
or claims to pension and retirement benefits which had not accrued
at the time of the taxpayer's resignation, and that the last
proviso of the resolution was inserted simply out of an abundance
of caution. The taxpayer received in cash a refund of his
contributions to the retirement plans, and there is no suggestion
that he was entitled to more. He was required to perform no further
services for Trinity after his resignation.

															The Commissioner asserted a deficiency against the taxpayer
after the latter had failed to include the payments in question in
gross income. After payment of the deficiency and administrative
rejection of a refund claim, the taxpayer sued the United States
for a refund in the District Court for the Eastern District of New
York. 137 F. Supp. 803. The trial judge, sitting without a jury,
made the simple finding that the payments were a "gift," [ Footnote 3 ] and judgment was entered
for the taxpayer. The Court of Appeals for the Second Circuit
reversed. 268 F.2d 727.

															The Government, urging that clarification of the problem
typified by these two cases was necessary, and that Page 363 U. S. 284 the approaches taken by the Courts of Appeals for the Second and
the Sixth Circuits were in conflict, petitioned for certiorari in
No. 376, and acquiesced in the taxpayer's petition in No. 546. On
this basis, and because of the importance of the question in the
administration of the income tax laws, we granted certiorari in
both cases. 361 U.S. 923.

															The exclusion of property acquired by gift from gross income
under the federal income tax laws was made in the first income tax
statute [ Footnote 4 ] passed
under the authority of the Sixteenth Amendment, and has been a
feature of the income tax statutes ever since. The meaning of the
term "gift" as applied to particular transfers has always been a
matter of contention. [ Footnote
5 ] Specific and illuminating legislative history on the point
does not appear to exist. Analogies and inferences drawn from other
revenue provisions, such as the estate and gift taxes, are dubious. See Lockard v. Commissioner, 166 F.2d 409. The meaning of
the statutory term has been shaped largely by the decisional law.
With this, we turn to the contentions made by the Government in
these cases. First. The Government suggests that we promulgate a new
"test" in this area to serve as a standard to be applied by the
lower courts and by the Tax Court in dealing with the numerous
cases that arise. [ Footnote 6 ]
We reject this invitation. We are of opinion that the governing
principles are necessarily general, and have already been spelled
out in the opinions of this Court, and that the problem is one
which, under the present statutory framework, does not lend itself
to any more definitive statement Page 363 U. S. 285 that would produce a talisman for the solution of concrete
cases. The cases at bar are fair examples of the settings in which
the problem usually arises. They present situations in which
payments have been made in a context with business overtones -- an
employer making a payment to a retiring employee; a businessman
giving something of value to another businessman who has been of
advantage to him in his business. In this context, we review the
law as established by the prior cases here.

															The course of decision here makes it plain that the statute does
not use the term "gift" in the common law sense, but in a more
colloquial sense. This Court has indicated that 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. For
the Court has shown that 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. Commissioner, 279 U.
S. 716 , 279 U. S. 730 .
And, 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, Bogardus v. Commissioner, 302 U. S.
34 , 302 U. S. 41 , it
is not a gift. And, conversely, "[w]here the payment is in return
for services rendered, it is irrelevant that the donor derives no
economic benefit from it." Robertson v. United States, 343 U. S. 711 , 343 U. S. 714 .
[ Footnote 7 ] A gift in the
statutory sense, on the other hand, proceeds from a "detached and
disinterested generosity," Commissioner v. LoBue, 351 U. S. 243 , 351 U. S. 246 ;
"out of affection, respect, admiration, charity or like impulses." Robertson v. United States, supra, at 343 U. S. 714 .
And, in this regard, the most critical consideration, as the Court
was agreed in the leading case here, is the transferor's
"intention." Page 363 U. S. 286 Bogardus v. Commissioner, 302 U. S.
34 , 302 U. S. 43 .
"What controls is the intention with which payment, however
voluntary, has been made." Id. at 302 U. S. 45 (dissenting opinion). [ Footnote
8 ]

															The Government says that this "intention" of the transferor
cannot mean what the cases on the common law concept of gift call
"donative intent." With that we are in agreement, for our decisions
fully support this. Moreover, the Bogardus case itself
makes it plain that 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. 302 U.S. at 302 U. S. 40 . It
scarcely needs adding that the parties' expectations or hopes as to
the tax treatment of their conduct, in themselves, have nothing to
do with the matter.

															It is suggested that the Bogardus criterion would be
more apt if rephrased in terms of "motive," rather than
"intention." We must confess to some skepticism as to whether such
a verbal mutation would be of any practical consequence. We take it
that the proper criterion, established by decision here, is one
that inquires what the basic reason for his conduct was in fact --
the dominant reason that explains his action in making the
transfer. Further than that we do not think it profitable to
go. Page 363 U. S. 287 Second. The Government's proposed "test," while
apparently simple and precise in its formulation, depends frankly
on a set of "principles" or "presumptions" derived from the decided
cases, and concededly subject to various exceptions; and it
involves various corollaries, which add to its detail. Were we to
promulgate this test as a matter of law, and accept with it its
various presuppositions and stated consequences, we would be
passing for beyond the requirements of the cases before us, and
would be painting on a large canvas with indeed a broad brush. The
Government derives it test from such propositions as the following:
that payments by an employer to an employee, even though voluntary,
ought, by and large, to be taxable; that the concept of a gift is
inconsistent with a payment's being a deductible business expense;
that a gift involves "personal" elements; that a business
corporation cannot properly make a gift of its assets. The
Government admits that there are exceptions and qualifications to
these propositions. We think, to the extent they are correct, that
these propositions are not principles of law, but rather maxims of
experience that the tribunals which have tried the facts of cases
in this area have enunciated in explaining their factual
determinations. Some of them simply represent truisms: it doubtless
is, statistically speaking, the exceptional payment by an employer
to an employee that amounts to a gift. Others are overstatements of
possible evidentiary inferences relevant to a factual determination
on the totality of circumstances in the case: it is doubtless
relevant to the over-all inference that the transferor treats a
payment as a business deduction, or that the transferor is a
corporate entity. But these inferences cannot be stated in absolute
terms. Neither factor is a shibboleth. The taxing statute does not
make nondeductibility by the transferor a condition on the "gift"
exclusion; nor does it draw and distinction, in terms, between
transfers by corporations Page 363 U. S. 288 and individuals, as to the availability of the "gift" exclusion
to the transferee. The conclusion whether a transfer amounts to a
"gift" is one that must be reached on consideration of all the
factors.

															Specifically, the trier of fact must be careful not to allow
trial of the issue whether the receipt of a specific payment is a
gift to turn into a trial of the tax liability, or of the
propriety, as a matter of fiduciary or corporate law, attaching to
the conduct of someone else. The major corollary to the
Government's suggested "test" is that, as an ordinary matter, a
payment by a corporation cannot be a gift, and, more specifically,
there can be no such thing as a "gift" made by a corporation which
would allow it to take a deduction for an ordinary and necessary
business expense. As we have said, we find no basis for such a
conclusion in the statute; and if it were applied as a
determinative rule of "law," it would force the tribunals trying
tax cases involving the donee's liability into elaborate inquiries
into the local law of corporations or into the peripheral
deductibility of payments as business expenses. The former issue
might make the tax tribunals the most frequent investigators of an
important and difficult issue of the laws of the several States,
and the latter inquiry would summon one difficult and delicate
problem of federal tax law as an aid to the solution of another.
[ Footnote 9 ] Or perhaps there
would be required a trial of the vexed issue whether there was a
"constructive" distribution of corporate property, for income tax
purposes, to the corporate Page 363 U. S. 289 agents who had sponsored the transfer. [ Footnote 10 ] These considerations, also,
reinforce us in our conclusion that, while the principles urged by
the Government may, in nonabsolute form as crystallizations of
experience, prove persuasive to the trier of facts in a particular
case, neither they nor any more detailed statement than has been
made can be laid down as a matter of law. Third. Decision of the issue presented in these cases
must be based ultimately on the application of the factfinding
tribunal's experience with the mainsprings of human conduct to the
totality of the facts of each case. The nontechnical nature of the
statutory standard, the close relationship of it to the date of
practical human experience, and the multiplicity of relevant
factual elements, with their various combinations, creating the
necessity of ascribing the proper force to each, confirm us in our
conclusion that primary weight in this area must be given to the
conclusions of the trier of fact. Baker v. Texas & Pacific
R. Co., 359 U. S. 227 ; Commissioner v. Heininger, 320 U.
S. 467 , 320 U. S. 475 ; United States v. Yellow Cab Co., 338 U.
S. 338 , 338 U. S. 341 ; Bogardus v. Commissioner, supra, at 302 U. S. 45 (dissenting opinion). [ Footnote
11 ] Page 363 U. S. 290 This conclusion may not satisfy an academic desire for tidiness,
symmetry, and precision in this area, any more than a system based
on the determinations of various factfinders ordinarily does. But
we see it as implicit in the present statutory treatment of the
exclusion for gifts, and in the variety of forums in which federal
income tax cases can be tried. If there is fear of undue
uncertainty or overmuch litigation, Congress may make more precise
its treatment of the matter by singling out certain factors and
making them determinative of the matters, as it has done in one
field of the "gift" exclusion's former application, that of prizes
and awards. [ Footnote 12 ]
Doubtless diversity of result will tend to be lessened somewhat,
since federal income tax decisions, even those in tribunals of
first instance turning on issues of fact, tend to be reported, and
since there may be a natural tendency of professional triers of
fact to follow one another's determinations, even as to factual
matters. But the question here remains basically one of fact, for
determination on a case-by-case basis.

															One consequence of this is that appellate review of
determinations in this field must be quite restricted. Where a jury
has tried the matter upon correct instructions, Page 363 U. S. 291 the only inquiry is whether it cannot be said that reasonable
men could reach differing conclusions on the issue. Baker v.
Texas & Pacific R. Co., supra, at 359 U. S. 228 .
Where the trial has been by a judge without a jury, the judge's
findings must stand unless "clearly erroneous." Fed.Rules Civ.Proc.
52(a).

															"A finding is 'clearly erroneous' when, although there is
evidence to support it, the reviewing court on the entire evidence
is left with the definite and firm conviction that a mistake has
been committed." United States v. United States Gypsum Co., 333 U.
S. 364 , 333 U. S. 395 .
The rule itself applies also to factual inferences from undisputed
basic facts, id. at 333 U. S. 394 ,
as will on many occasions be presented in this area. Cf. Graver
Tank & Mfg. Co. v. Linde Air Products Co., 339 U.
S. 605 , 339 U. S.
609 -610. And Congress has, in the most explicit terms,
attached the identical weight to the findings of the Tax Court.
I.R.C. § 7482(a). [ Footnote
13 ] Fourth. A majority of the Court is in accord with the
principles just outlined. And, applying them to the Duberstein case, we are in agreement, on the evidence we
have set forth, that it cannot be said that the conclusion of the
Tax Court was "clearly erroneous." It seems to us plain that, 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, Page 363 U. S. 292 at bottom, a recompense for Duberstein's past services, or an
inducement for him to be of further service in the future. We
cannot say with the Court of Appeals that such a conclusion was
"mere suspicion" on the Tax Court's part. To us, it appears based
in the sort of informed experience with human affairs that
factfinding tribunals should bring to this task.

															As to Stanton, we are in disagreement. To four of us,
it is critical here that the District Court as trier of fact made
only the simple and unelaborated finding that the transfer in
question was a "gift." [ Footnote
14 ] To be sure, conciseness is to be strived for, and prolixity
avoided, in findings; but, to the four of us, there comes a point
where findings become so sparse and conclusory as to give to
revelation of what the District Court's concept of the determining
facts and legal standard may be. See Matton Oil Transfer Corp.
v. The Dynamic, 123 F.2d 999, 1000-1001. Such conclusory,
general findings do not constitute compliance with Rule 52's
direction to "find the facts specially and state separately . . .
conclusions of law thereon." While the standard of law in this area
is not a complex one, we four think the unelaborated finding of
ultimate fact here cannot stand as a fulfillment of these
requirements. It affords the reviewing court not the semblance of
an indication of the legal standard with which the trier of fact
has approached his task. For all that appears, the District Page 363 U. S. 293 Court may have viewed the form of the resolution or the simple
absence of legal consideration as conclusive. While the judgment of
the Court of Appeals cannot stand, the four of us think there must
be further proceedings in the District Court looking toward new and
adequate findings of fact. In this, we are joined by MR. JUSTICE
WHITTAKER, who agrees that the findings were inadequate, although
he does not concur generally in this opinion.

															Accordingly, in No. 376, the judgment of this Court is that the
judgment of the Court of Appeals is reversed, and in No. 546, that
the judgment of the Court of Appeals is vacated, and the case is
remanded to the District Court for further proceedings not
inconsistent with this opinion. It is so ordered. MR. JUSTICE HARLAN concurs in the result in No. 376. In No. 546,
he would affirm the judgment of the Court of Appeals for the
reasons stated by MR. JUSTICE FRANKFURTER.

															MR. JUSTICE WHITTAKER, agreeing with Bogardus that
whether a particular transfer is or is not a "gift" may involve "a
mixed question of law and fact," 302 U.S. at 302 U. S. 39 ,
concurs only in the result of this opinion.

															MR. JUSTICE DOUGLAS dissents, since he is of the view that, in
each of these two cases, there was a gift under the test which the
Court fashioned nearly a quarter of a century ago in Bogardus
v. Commissioner, 302 U. S. 34 .

															* Together with No. 546, Stanton et ux. v. United
States, on certiorari to the United States Court of Appeals
for the Second Circuit, argued March 24, 1960.

															[ Footnote 1 ]

															The operative provision in the cases at bar is § 22(b)(3) of the
1939 Internal Revenue Code. The corresponding provision of the
present Code is § 102(a).

															[ Footnote 2 ]

															In both cases, the husband will be referred to as the taxpayer,
although his wife joined with him in joint tax returns.

															[ Footnote 3 ] See note 14 infra. [ Footnote 4 ]

															§ II.B., c. 16, 38 Stat. 167.

															[ Footnote 5 ]

															The first case of the Board of Tax Appeals officially reported
in fact deals with the problem. Parrott v. Commissioner, 1
B.T.A. 1.

															[ Footnote 6 ]

															The Government's proposed test is stated: "Gifts should be
defined as transfers of property made for personal, as
distinguished from business, reasons."

															[ Footnote 7 ]

															The cases including "tips" in gross income are classic examples
of this. See, e.g., Roberts v. Commissioner, 176 F.2d
221.

															[ Footnote 8 ]

															The parts of the Bogardus opinion which we touch on
here are the ones we take to be basic to its holding, and the ones
that we read as stating those governing principles which it
establishes. As to them, we see little distinction between the
views of the Court and those taken in dissent in Bogardus. The fear expressed by the dissent at 302 U.S. at 302 U. S. 44 ,
that the prevailing opinion "seems" to hold "that every payment
which in any aspect is a gift is . . . relieved of any tax,"
strikes us now as going beyond what the opinion of the Court held
in fact. In any event, the Court's opinion in Bogardus does
not seem to have been so interpreted afterwards. The principal
difference, as we see it, between the Court's opinion and the
dissent lies in the weight to be given the findings of the trier of
fact.

															[ Footnote 9 ]

															Justice Cardozo once described in memorable language the inquiry
into whether an expense was an "ordinary and necessary" one of a
business:

															"One struggles in vain for any verbal formula that will supply a
ready touchstone. The standard set up by the statute is not a rule
of law; it is rather a way of life. Life in all its fullness must
supply the answer to the riddle." Welch v. Helvering, 290 U. S. 111 , 290 U. S. 115 .
The same comment well fits the issue in the cases at bar.

															[ Footnote 10 ] Cf., e.g., Nelson v. Commissioner, 203 F.2d 1.

															[ Footnote 11 ]

															In Bogardus, the Court was divided 5 to 4 as to the
scope of review to be extended the factfinder's determination as to
a specific receipt, in a context like that of the instant cases.
The majority held that such a determination was "a conclusion of
law, or at least a determination of a mixed question of law and
fact." 302 U.S. at 302 U. S. 39 .
This formulation it took as justifying it in assuming a fairly
broad standard of review. The dissent took a contrary view. The
approach of this part of the Court's ruling in Bogardus, which we think was the only part on which there was real division
among the Court, see note
8 supra, has not been afforded subsequent respect
here. In Heininger, a question presenting at the most
elements no more factual and untechnical than those here -- that of
the "ordinary and necessary" nature of a business expense -- was
treated as one of fact. Cf. note 9 supra. And in Dobson v.
Commissioner, 320 U. S. 489 , 320 U. S. 498 ,
n. 22, Bogardus was adversely criticized insofar as it
treated the matter as reviewable as one of law. While Dobson is, of course, no longer the law insofar as it
ordains a greater weight to be attached to the findings of the Tax
Court than to those of any other factfinder in a tax litigation, see note 13 infra, we think its criticism of this point in the Bogardus opinion is sound in view of the dominant
importance of factual inquiry to decision of these cases.

															[ Footnote 12 ]

															I.R.C. § 74, which is a provision new with the 1954 Code.
Previously, there had been holdings that such receipts as the "Pot
O' Gold" radio giveaway, Washburn v. Commissioner, 5 T.C.
1333, and the Ross Essay Prize, McDermott v. Commissioner, 80 U.S.App.D.C. 176, 150 F.2d 585, were "gifts." Congress intended
to obviate such rulings. S.Rep. No. 1622, 83d Cong., 2d Sess., p.
178. We imply no approval of those holdings under the general
standard of the "gift" exclusion. Cf. Robertson v. United
States, supra. [ Footnote 13 ]

															"The United States Courts of Appeals shall have exclusive
jurisdiction to review the decisions of the Tax Court . . . in the
same manner and to the same extent as decisions of the district
courts in civil actions tried without a jury. . . ."

															The last words first came into the statute through an amendment
to § 1141(a) of the 1939 Code in 1948 (§ 36 of the Judicial Code
Act, 62 Stat. 991). The purpose of the 1948 legislation was to
remove from the law the favored position (in comparison with
District Court and Court of Claims rulings in tax matters) enjoyed
by the Tax Court under this Court's ruling in Dobson v.
Commissioner, 320 U. S. 489 . Cf. note 11 supra. See Grace Bros., Inc. v. Commissioner, 173
F.2d 170, 173.

															[ Footnote 14 ]

															The "Findings of Fact and Conclusions of Law" were made orally,
and were simply:

															"The resolution of the Board of Directors of the Trinity
Operating Company, Incorporated, held November 19, 1942, after the
resignations had been accepted of the plaintiff from his positions
as controller of the corporation of the Trinity Church, and the
president of the Trinity Operating Company, Incorporated, whereby a
gratuity was voted to the plaintiff, Allen [ sic ] D.
Stanton, in the amount of $20,000 payable to him in monthly
installments of $2,000 each, commencing with the month of December,
1942, constituted a gift to the taxpayer, and therefore need not
have been reported by him as income for the taxable years 1942, or
1943."

															MR. JUSTICE BLACK, concurring and dissenting.

															I agree with the Court that it was not clearly erroneous for the
Tax Court to find as it did in No. 376 that the automobile transfer
to Duberstein was not a gift, and so Page 363 U. S. 294 I agree with the Court's opinion and judgment reversing the
judgment of the Court of Appeals in that case.

															I dissent in No. 546, Stanton v. United States. The
District Court found that the $20,000 transferred to Mr. Stanton by
his former employer at the end of ten years' service was a gift,
and therefore exempt from taxation under I.R.C. of 1939, § 22(b)(3)
(now I.R.C. of 1954, § 102(a)). I think the finding was not clearly
erroneous, and that the Court of Appeals was therefore wrong in
reversing the District Court's judgment. While conflicting
inferences might have been drawn, there was evidence to show that
Mr. Stanton's long services had been satisfactory, that he was well
liked personally and had given splendid service, that the employer
was under no obligation at all to pay any added compensation, but
made the $20,000 payment because prompted by a genuine desire to
make him a "gift," to award him a "gratuity." Cf. Commissioner
v. LoBue, 351 U. S. 243 , 351 U. S.
246 -247. The District Court's finding was that the added
payment "constituted a gift to the taxpayer, and therefore need not
have been reported by him as income. . . ." The trial court might
have used more words, or discussed the facts set out above in more
detail, but I doubt if this would have made its crucial, adequately
supported finding any clearer. For this reason, I would reinstate
the District Court's judgment for petitioner.

															MR. JUSTICE FRANKFURTER, concurring in the judgment in No. 376
and dissenting in No. 546.

															As the Court's opinion indicates, we brought these two cases
here partly because of a claimed difference in the approaches
between two Courts of Appeals, but primarily on the Government's
urging that, in that interest of the better administration of the
income tax laws, clarification was desirable for determining when a
transfer of property constitutes a "gift" and is not to be included
in Page 363 U. S. 295 income for purposes of ascertaining the "gross income" under the
Internal Revenue Code. As soon as this problem emerged after the
imposition of the first income tax authorized by the Sixteenth
Amendment, it became evident that its inherent difficulties and
subtleties would not easily yield to the formulation of a general
rule or test sufficiently definite to confine within narrow limits
the area of judgment in applying it. While, at its core, the tax
conception of a gift no doubt reflected the non-legal,
non-technical notion of a benefaction unentangled with any aspect
of worldly requital, the divers blends of personal and pecuniary
relationships in our industrial society inevitably presented
niceties for adjudication which could not be put to rest by any
kind of general formulation.

															Despite acute arguments at the bar and a most thorough
reexamination of the problem on a full canvass of our prior
decisions and an attempted fresh analysis of the nature of the
problem, the Court has rejected the invitation of the Government to
fashion anything like a litmus paper test for determining what is
excludable as a "gift" from gross income. Nor has the Court
attempted a clarification of the particular aspects of the problem
presented by these two cases, namely, payment by an employer to an
employee upon the termination of the employment relation and
nonobligatory payment for services rendered in the course of a
business relationship. While I agree that experience has shown the
futility of attempting to define, by language so circumscribing as
to make it easily applicable, what constitutes a gift for every
situation where the problem may arise, I do think that greater
explicitness is possible in isolating and emphasizing factors which
militate against a gift in particular situations.

															Thus, regarding the two frequently recurring situations involved
in these cases -- things of value given to employees by their
employers upon the termination of employment Page 363 U. S. 296 and payments entangled in a business relation and occasioned by
the performance of some service -- the strong implication is that
the payment is of a business nature. The problem in these two cases
is entirely different from the problem in a case where a payment is
made from one member of a family to another, where the implications
are directly otherwise. No single general formulation appropriately
deals with both types of cases, although both involve the question
whether the payment was a "gift." While we should normally suppose
that a payment from father to son was a gift unless the contrary is
shown, in the two situations now before us, the business
implications are so forceful that I would apply a presumptive rule
placing the burden upon the beneficiary to prove the payment wholly
unrelated to his services to the enterprise. The Court, however,
has declined so to analyze the problem, and has concluded

															"that the governing principles are necessarily general, and have
already been spelled out in the opinions of this Court, and that
the problem is one which, under the present statutory framework,
does not lend itself to any more definitive statement that would
produce a talisman for the solution of concrete cases."

															The Court has made only one authoritative addition to the
previous course of our decisions. Recognizing Bogardus v.
Commissioner, 302 U. S. 34 , as
"the leading case here," and finding essential accord between the
Court's opinion and the dissent in that case, the Court has drawn
from the dissent in Bogardus for infusion into what will
now be a controlling qualification, recognition that it is "for the
triers of the facts to seek among competing aims or motives the
ones that dominated conduct." 302 U. S. 302 U.S.
34, 302 U. S. 45 (dissenting opinion). All this being so in view of the Court, it
seems to me desirable not to try to improve what has "already been
spelled out" in the opinions of this Court, but to leave to the
lower courts Page 363 U. S. 297 the application of old phrases, rather than to float new ones,
and thereby inevitably produce a new volume of exegesis on the new
phrases.

															Especially do I believe this when factfinding tribunals are
directed by the Court to rely upon their "experience with the
mainsprings of human conduct" and on their "informed experience
with human affairs" in appraising the totality of the facts of each
case. Varying conceptions regarding the "mainsprings of human
conduct" are derived from a variety of experiences or assumptions
about the nature of man, and "experience with human affairs," is
not only diverse, but also often drastically conflicting. What the
Court now does sets factfinding bodies to sail on an illimitable
ocean of individual beliefs and experiences. This can hardly fail
to invite, if indeed not encourage, too individualized diversities
in the administration of the income tax law. I am afraid that, by
these new phrasings, the practicalities of tax administration,
which should be as uniform as is possible in so vast a country as
ours, will be embarrassed. By applying what has already been
spelled out in the opinions of this Court, I agree with the Court
in reversing the judgment in Commissioner v.
Duberstein. But I would affirm the decision of the Court of Appeals for the
Second Circuit in Stanton v. United States. I would do so
on the basis of the opinion of Judge Hand, and more particularly
because the very terms of the resolution by which the $20,000 was
awarded to Stanton indicated that it was not a "gratuity" in the
sense of sheer benevolence, but in the nature of a generous
lagniappe, something extra thrown in for services received, though
not legally nor morally required to be given. This careful
resolution, doubtless drawn by a lawyer and adopted by some
hardheaded businessmen, contained a proviso that Stanton should
abandon all rights to "pension and retirement benefits." The fact
that Stanton had no such Page 363 U. S. 298 claims does not lessen the significance of the clause as
something "to make assurance doubly sure." 268 F.2d 728. The
business nature of the payment is confirmed by the words of the
resolution, explaining the "gratuity" as

															"in appreciation of the services rendered by Mr. Stanton as
Manager of the Estate and Comptroller of the Corporation of Trinity
Church throughout nearly ten years, and as President of Trinity
Operating Company, Inc."

															The force of this document, in light of all the factors to which
Judge Hand adverted in his opinion, was not in the least diminished
by testimony at the trial. Thus, the taxpayer has totally failed to
sustain the burden I would place upon him to establish that the
payment to him was wholly attributable to generosity unrelated to
his performance of his secular business functions as an officer of
the corporation of the Trinity Church of New York and the Trinity
Operating Co. Since the record totally fails to establish
taxpayer's claim, I see no need of specific findings by the trial
judge.


U.S. Supreme Court Commissioner v. Glenshaw Glass Co., 348
U.S. 426 (1955) Commissioner v. Glenshaw Glass
Co. No. 199 Argued February 28,
1955 Decided March 28, 1955 348
U.S. 426 ast|>* 348
U.S. 426 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE THIRD
CIRCUIT Syllabus Money received as exemplary damages for fraud or as the punitive
two-thirds portion of a treble damage antitrust recovery must be
reported by a taxpayer as "gross income" under § 22(a) of the
Internal Revenue Code of 1939. Pp. 348 U. S.
427 -433.

															(a) In determining what constitutes "gross income" as defined in
§ 22(a), effect must be given to the catch-all language "gains or
profits and income derived from any source whatever." Pp. 348 U. S.
429 -430.

															(b) Eisner v. Macomber, 252 U.
S. 189 , distinguished. Pp. 348 U. S.
430 -431.

															(c) The mere fact that such payments are extracted from the
wrongdoers as punishment for unlawful conduct cannot detract from
their character as taxable income to the recipients. P. 348 U. S.
431 .

															(d) A different result is not required by the fact that § 22 (a)
was reenacted without change after the Board of Tax Appeals had
held punitive damages nontaxable in Highland Farms Corp., 42 B.T.A. 1314. Pp. 348 U. S.
431 -432.

															(e) The legislative history of the Internal Revenue Code of 1954
does not require a different result. The definition of gross income
was simplified, but no effect upon its present broad scope was
intended. P. 348 U. S.
432 .

															(f) Punitive damages cannot be classified as gifts, nor do they
come under any other exemption in the Code. P. 348 U. S.
432 .

															211 F.2d 928 reversed. Page 348 U. S. 427 MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.

															This litigation involves two cases with independent factual
backgrounds, yet presenting the identical issue. The two cases were
consolidated for argument before the Court of Appeals for the Third
Circuit, and were heard en banc. The common question is whether
money received as exemplary damages for fraud or as the punitive
two-thirds portion of a treble damage antitrust recovery must be
reported by a taxpayer as gross income under § 22(a) of the
Internal Revenue Code of 1939. [ Footnote 1 ] In a single opinion, 211 F.2d 928, the Court
of Appeals affirmed the Tax Court's separate rulings in favor of
the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the frequent
recurrence of the question and differing interpretations by the
lower courts of this Court's decisions bearing upon the problem, we
granted the Commissioner of Internal Revenue's ensuing petition for
certiorari. 348 U.S. 813.

															The facts of the cases were largely stipulated, and are not in
dispute. So far as pertinent, they are as follows: Commissioner v. Glenshaw Glass Co. -- The Glenshaw
Glass Company, a Pennsylvania corporation, manufactures glass
bottles and containers. It was engaged in protracted litigation
with the Hartford-Empire Company, which manufactures machinery of a
character used by Glenshaw. Among the claims advanced by
Glenshaw Page 348 U. S. 428 were demands for exemplary damages for fraud [ Footnote 2 ] and treble damages for injury to
its business by reason of Hartford's violation of the federal
antitrust laws. [ Footnote 3 ] In
December, 1947, the parties concluded a settlement of all pending
litigation by which Hartford paid Glenshaw approximately $800,000.
Through a method of allocation which was approved by the Tax Court,
18 T.C. 860, 870-872, and which is no longer in issue, it was
ultimately determined that, of the total settlement, $324,529.94
represented payment of punitive damages for fraud and antitrust
violations. Glenshaw did not report this portion of the settlement
as income for the tax year involved. The Commissioner determined a
deficiency, claiming as taxable the entire sum less only deductible
legal fees. As previously noted, the Tax Court and the Court of
Appeals upheld the taxpayer. Commissioner v. William Goldman Theatres, Inc. --
William Goldman Theatres, Inc., a Delaware corporation operating
motion picture houses in Pennsylvania, sued Loew's, Inc., alleging
a violation of the federal antitrust laws and seeking treble
damages. After a holding that a violation had occurred, William
Goldman Theatres, Inc. v. Loew's Inc., 150 F.2d 738, the case
was remanded to the trial court for a determination of damages. It
was found that Goldman had suffered a loss of profits equal to
$125,000, and was entitled to treble damages in the sum of
$375,000. William Goldman Theatres, Inc. v. Loew's,
Inc., 69 F. Supp.
103 , aff'd 164 F.2d 1021, cert. denied, 334
U.S. 811. Goldman reported only $125,000 of the recovery as gross
income, and claimed that the $250,000 Page 348 U. S. 429 balance constituted punitive damages, and, as such, was not
taxable. The Tax Court agreed, 19 T.C. 637, and the Court of
Appeals, hearing this with the Glenshaw case, affirmed.
211 F.2d 928.

															It is conceded by the respondents that there is no
constitutional barrier to the imposition of a tax on punitive
damages. Our question is one of statutory construction: are these
payments comprehended by § 22(a)?

															The sweeping scope of the controverted statute is readily
apparent:

															"SEC. 22. GROSS INCOME."

															"(a) GENERAL DEFINITION. 'Gross income' includes gains, profits,
and income derived from salaries, wages, or compensation for
personal service . . . of whatever kind and in whatever form paid,
or from professions, vocations, trades, businesses, commerce, or
sales, or dealings in property, whether real or personal, growing
out of the ownership or use of or interest in such property; also
from interest, rent, dividends, securities, or the transaction of
any business carried on for gain or profit, or gains or profits
and income derived from any source whatever. . . ."

															(Emphasis added.) [ Footnote
4 ]

															This Court has frequently stated that this language was used by
Congress to exert in this field "the full measure of its taxing
power." Helvering v. Clifford, 309 U.
S. 331 , 309 U. S. 334 ; Helvering v. Midland Mutual Life Ins. Co., 300 U.
S. 216 , 300 U. S. 223 ; Douglas v. Willcuts, 296 U. S. 1 , 296 U. S. 9 ; Irwin v. Gavit, 268 U. S. 161 , 268 U. S. 166 .
Respondents contend that punitive damages, characterized as
"windfalls" flowing from the culpable conduct of third parties, are
not within the scope of the section. But Congress applied no
limitations as to the source of taxable receipts, nor
restrictive Page 348 U. S. 430 labels as to their nature. And the Court has given a liberal
construction to this broad phraseology in recognition of the
intention of Congress to tax all gains except those specifically
exempted. Commissioner v. Jacobson, 336 U. S.
28 , 336 U. S. 49 ; Helvering v. Stockholms Enskilda Bank, 293 U. S.
84 , 293 U. S. 87 -91.
Thus, the fortuitous gain accruing to a lessor by reason of the
forfeiture of a lessee's improvements on the rented property was
taxed in Helvering v. Bruun, 309 U.
S. 461 . Cf. Robertson v. United States, 343 U. S. 711 ; Rutkin v. United States, 343 U. S. 130 ; United States v. Kirby Lumber Co., 284 U. S.
1 . Such decisions demonstrate that we cannot but ascribe
content to the catchall provision of § 22(a), "gains or profits and
income derived from any source whatever." The importance of that
phrase has been to frequently recognized since its first appearance
in the Revenue Act of 1913 [ Footnote 5 ] to say now that it adds nothing to the meaning
of "gross income."

															Nor can we accept respondents' contention that a narrower
reading of § 22(a) is required by the Court's characterization of
income in Eisner v. Macomber, 252 U.
S. 189 , 252 U. S. 207 ,
as "the gain derived from capital, from labor, or from both
combined." [ Footnote 6 ] The
Court was there endeavoring to determine whether the distribution
of a corporate stock dividend constituted a realized gain to the
shareholder, or changed "only the form, not the essence," of Page 348 U. S. 431 his capital investment. Id. at 252 U. S. 210 .
It was held that the taxpayer had "received nothing out of the
company's assets for his separate use and benefit." Id. at 252 U. S. 211 .
The distribution, therefore, was held not a taxable event. In that
context -- distinguishing gain from capital -- the definition
served a useful purpose. But it was not meant to provide a
touchstone to all future gross income questions. Helvering v.
Bruun, supra, at 309 U. S.
468 -469; United States v. Kirby Lumber Co.,
supra, at 284 U. S. 3 .

															Here, we have instances of undeniable accessions to wealth,
clearly realized, and over which the taxpayers have complete
dominion. The mere fact that the payments were extracted from the
wrongdoers as punishment for unlawful conduct cannot detract from
their character as taxable income to the recipients. Respondents
concede, as they must, that the recoveries are taxable to the
extent that they compensate for damages actually incurred. It would
be an anomaly that could not be justified in the absence of clear
congressional intent to say that a recovery for actual damages is
taxable, but not the additional amount extracted as punishment for
the same conduct which caused the injury. And we find no such
evidence of intent to exempt these payments.

															It is urged that reenactment of § 22(a) without change since the
Board of Tax Appeals held punitive damages nontaxable in Highland Farms Corp., 42 B.T.A. 1314, indicates
congressional satisfaction with that holding. Reenactment --
particularly without the slightest affirmative indication that
Congress ever had the Highland Farms decision before it --
is an unreliable indicium, at best. Helvering v. Wilshire Oil
Co., 308 U. S. 90 , 308 U. S.
100 -101; Koshland v. Helvering, 298 U.
S. 441 , 298 U. S. 447 .
Moreover, the Commissioner promptly published his nonacquiescence
in this portion of the Highland Farms holding, [ Footnote 7 ] and has, Page 348 U. S. 432 before and since, consistently maintained the position that
these receipts are taxable. [ Footnote 8 ] It therefore cannot be said with certitude
that Congress intended to carve an exception out of § 22(a)'s
pervasive coverage. Nor does the 1954 Code's [ Footnote 9 ] legislative history, with its
reiteration of the proposition that statutory gross income is
"all-inclusive," [ Footnote
10 ] give support to respondents' position. The definition of
gross income has been simplified, but no effect upon its present
broad scope was intended. [ Footnote 11 ] Certainly punitive damages cannot reasonably
be classified as gifts, cf. Commissioner v. Jacobson, 336 U. S. 28 , 336 U. S. 47 -52,
nor do they come under any other exemption provision in the Code.
We would do violence to the plain meaning of the statute and
restrict a clear legislative attempt to Page 348 U. S. 433 bring the taxing power to bear upon all receipts
constitutionally taxable were we to say that the payments in
question here are not gross income. See Helvering v. Midland
Mutual Life Ins. Co., supra, at 300 U. S.
223 . Reversed. MR. JUSTICE DOUGLAS dissents.

															MR. JUSTICE HARLAN took no part in the consideration or decision
of this case.

															* Together with Commissioner of Internal Revenue v. William
Goldman Theaters, Inc., which was a separate case decided by
the Court of Appeals in the same opinion.

															[ Footnote 1 ]

															53 Stat. 9, 53 Stat. 574, 26 U.S.C. § 22(a).

															[ Footnote 2 ]

															For the bases of Glenshaw's claim for damages from fraud, see Shawkee Manufacturing Co. v. Hartford-Empire Co., 322 U. S. 271 ; Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.
S. 238 .

															[ Footnote 3 ] See Hartford-Empire Co. v. United States, 323 U.
S. 386 , 324 U. S. 324 U.S.
570.

															[ Footnote 4 ] See note 1 supra. [ Footnote 5 ]

															38 Stat. 114, 167.

															[ Footnote 6 ]

															The phrase was derived from Stratton's Independence, Ltd. v.
Howbert, 231 U. S. 399 , 231 U. S. 415 ,
and Doyle v. Mitchell Bros. Co., 247 U.
S. 179 , 247 U. S. 185 ,
two cases construing the Revenue Act of 1909, 36 Stat. 11, 112.
Both taxpayers were "wasting asset" corporations, one being engaged
in mining, the other in lumbering operations. The definition was
applied by the Court to demonstrate a distinction between a return
on capital and "a mere conversion of capital assets." Doyle v.
Mitchell Bros. Co., supra, at 247 U. S. 184 .
The question raised by the instant case is clearly
distinguishable.

															[ Footnote 7 ]

															1941-1 Cum.Bull, 16.

															[ Footnote 8 ]

															The long history of departmental rulings holding personal injury
recoveries nontaxable on the theory that they roughly correspond to
a return of capital cannot support exemption of punitive damages
following injury to property. See 2 Cum.Bull. 71; I-1
Cum.Bull. 92, 93; VII-2 Cum.Bull. 123; 1954-1 Cum.Bull. 179, 180.
Damages for personal injury are, by definition, compensatory only.
Punitive damages, on the other hand, cannot be considered a
restoration of capital for taxation purposes.

															[ Footnote 9 ]

															68A Stat. 3 et seq. Section 61(a) of the Internal
Revenue Code of 1954, 68A Stat. 17, is the successor to § 22(a) of
the 1939 Code.

															[ Footnote 10 ]

															H.R.Rep.No.1337, 83d Cong., 2d Sess. A18; S.Rep.No.1622, 83d
Cong., 2d Sess. 168.

															[ Footnote 11 ]

															In discussing § 61(a) of the 1954 Code, the House Report
states:

															"This section corresponds to section 22(a) of the 1939 Code.
While the language in existing section 22(a) has been simplified,
the all-inclusive nature of statutory gross income has not been
affected thereby. Section 61(a) is as broad in scope as section
22(a)."

															"Section 61(a) provides that gross income includes 'all income
from whatever source derived.' This definition is based upon the
16th Amendment, and the word 'income' is used in its constitutional
sense."

															H.R.Rep.No.1337, supra, note 10 at A18 A virtually identical statement appears in S.Rep.No.1622, supra, note 10 at
168.