Citation Commissioner v. Duberstein, 363 U.S. 278(1960)

Issue Is receiving an automobile from a business friend considered a gift or taxable compensation?

Facts Mr. Duberstein was president of the Duberstein Iron & Metal Company, and frequently did business with Mohawk Metal Corporation, whose president was Mr. Berman. They were friends and often talked on the phone about not only business deals, but also potential business clients. Mr. Duberstein gave Mr. Berman a list of potential clients for him to reach out to that his company was not interested in pursuing. That list ended up being helpful to Mohawk Metal and in return Mr. Berman decided to offer a Cadillac car to Mr. Duberstein, which he wrote off as a business expense. Even though Mr. Duberstein was hesitant to take it, he eventually did. The Tax court held that this transaction was not in fact a gift, but rather compensation for the services that he provided to Mr. Berman, therefore it was to be considered taxable income. The case was the taken to the court of appeals where Mr. Duberstein stated that he was never expecting the Cadillac making it a gift, and they saw it that was and revered the decision under mere suspicion that it was a gift. However, at the Supreme Court level they tested to transaction, and once again reversed the decision. They used four tests to decide that the transaction was deemed to be a business transaction, which made it taxable income, rather than simple a gift to Mr. Duberstein.

Holding The Cadillac received by Mr. Duberstein is to be seen as taxable income rather than a gift. The car was not a gift, but rather a recompense for services that he had performed in the past for Mr. Berman.

Analysis (1) Since the Cadillac was a payment in return for services rendered, it is irrelevant that the donor derives no economic benefit from it, as proven in Robertson v. United States, 343 U. S. 711, 714 [52-1 USTC ¶9343]. The intention of the gift is what needs to be looked at, and Mr. Berman clearly paid Mr. Duberstein for his services with a car.
(2) There is no formal test to be given, but all the facts must be considered, and since the car was given and a business deduction was taken, the court finds it hard to see that as just a gift as if it were to an employee. The Government’s proposed test is stated: “Gifts should be defined as transfers of property made for personal as distinguished from business reasons.” Since it was clearly business reasons for Mr. Berman to give the car, it should not be considered a gift.

(3) Even though the court does see that the Cadillac was given with an absence of obligation, it was a recompense for Mr. Duberstein’s past services. If he had not given for services, it could be seen as a gift, however that is why the court makes it clear that each case must be seen as a case-by-case decision, and cannot make an overarching decision whether a car will always be seen as a gift or compensation.