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Case Commissioner v Duberstein

Facts of the case:

Case Year: 1951

Taxpayer: Duberstein – President of Duberstein Iron & Metal Company

Business Friend: Berman – Mohawk Metal Corporation

Synopsis:Duberstein and Berman’s company have done numerous business in the past. The two companies are in different states, so all business has been completed via telephone. The business consisted mostly of buying and selling of metals between the two companies. After seven years of business between the two companies Duberstein and Berman considered each other “personal” acquaintances. During their phone conversations Berman would ask Duberstein for references for potential customers that his company was not interested in. In 1951, Berman telephoned Duberstein and said the information on the potential customers provided was very helpful and he would like to give Duberstein a present. Berman insisted and presented Duberstein with a Cadillac as a gift. Duberstein testified that he did not think Berman would have gifted the Cadillac if it were not for the information Duberstein provided. Berman also classified the gifted Cadillac as a business expense on Mohawk’s Metal Corp income tax return.

Issue:

Duberstein did not include the value of the Cadillac in gross income on his 1951 tax return.

Outcome:

The record lacks evidence revealing any intention of the payor(Berman) making a gift. It was concluded that the automobile was intended by Berman as compensation for services rendered by Duberstein.

Analysis:

The fact that the Cadillac was gifted to Duberstein after he provided information to Berman on potential customers classifies this as Gross Income for Duberstein. It is not a gift if “the incentive of anticipated benefit of an economic nature” is present. Also what I believe solidifies this, is the fact that Berman expensed the automobile on Mohawk’s corporate tax return as a business expense. Therefore, he clearly did not classify the Cadillac as a “gift”.