COMMISSIONER v. DUBERSTEIN.

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Argument of Philip Elman

Chief Justice Earl Warren: Number 376, Commissioner of Internal Revenue, versus, Mose Duberstein, et al.

Mr. Elman.

Mr. Philip Elman: Mr. Chief Justice, may it please the Court.

This case, which is here from the Sixth Circuit and the next case, the Stanton case, which is here from the Second Circuit, also presents the question of distinguishing between gifts and income for federal tax purposes.

As Mr. Rauh pointed out unlike the Kaiser case, these two cases present the issue in the more familiar general context of payments in commercial and employment relationships and they do not involve the special differentiating factors as to strike benefit payments upon which Mr. Rauh has relied.

The facts of the Duberstein case are extremely simple.

They are not in dispute and indeed, they are based entirely upon the testimony of the taxpayer himself and his account.

Mr. Duberstein is the president of an Iron and Metal Company in Dayton, Ohio.

That company did business with another corporation in New York City, the Mohawk Metal Company of which the president was Mr. Berman.

And the transactions between these two companies were usually conducted over the telephone, conversations between these two men.

And occasionally, Mr. Berman would inquire of Mr. Duberstein if he knew the names of certain customers who used chemical products which were sold by the Mohawk Company but not by Duberstein's company and if Mr. Duberstein had such information, he would furnish it to Mr. Berman.

He testified and we accept his testimony entirely that he gave this information pituitously without any hope or expectation of payment or reward.

Nonetheless, in 1951, as Mr. Rauh has told you, he received from the Mohawk Company, a Cadillac for which the company paid $4250 and the ultimate question in the case is whether that's a gift or income to Mr. Duberstein.

Now, the circumstances in which that Cadillac was given were described by Mr. Duberstein.

And again, I wish to make it clear that we accept this testimony and all the implications of it entirely.

Mr. Berman called Mr. Duberstein on the telephone from New York and he, Mr. Berman, told that due to the fact that the information I had given him was so helpful that he felt he wanted to give me a present and I told him he didn't owe me anything and he said, “Well, he had a Cadillac car as a gift.”

Now I should send to New York to receive it which I finally did.

I told him he owed me nothing and I didn't expect anything for the information.

I didn't intend to be compensated, but he insisted that I accept this Cadillac car.

On cross-examination, he was asked whether he thought he would have gotten this car, had he not given the information to Mr. Berman.

His answer was, “I don't think so.”

Mr. Duberstein --

Chief Justice Earl Warren: What is the question again, please?

Mr. Philip Elman: The question was, “Mr. Duberstein, this information, I believe, you testified proved valuable to Mohawk.

Had you not given him this information, would you still have gotten this Cadillac car” and the taxpayer answered, “I don't think so.”

Chief Justice Earl Warren: Mr. Elman, may I ask you this question that may not bear in your case particularly, but suppose he had expected something without an agreement, but suppose he thought “Well, I get them these customers, I will get something,” would that affect your case any?

Mr. Philip Elman: I don't think it would be necessary to support our position here.

We would merely confirm what we think to be perfectly clear from the taxpayer's own testimony that this car was given in payment of services rendered, whether or not the recipient received it, we think it's wholly immaterial.

Chief Justice Earl Warren: Immaterial.

Unknown Speaker: May I ask a question, (Inaudible)

Mr. Philip Elman: No, he wasn't -- he wasn't asked that question.

I think I should say, in fairness to Mr. Duberstein that when he discovered in 1954, he did not show it on his income tax return, he treated as a gift.

He found out about this thing apparently the first time, three years later in 1954.

The Internal Revenue Service was auditing Mohawk's return in New York and they discovered that Mohawk had deducted the cost of this car as a business expense, treating it as a payment in the nature of a finder's fee.

At that point, the Internal Revenue Service again had look at Mr. Duberstein's return and inquired of him as to the transaction.

And Mr. Duberstein's account on his instructions got in touch with Mohawk's account and asked why it was, that Mohawk had taken this deduction.

Apparently, Mr, Duberstein was not only surprised.

He was quite (Inaudible).

This had been done and the accountant testified, this is on page 21 of the record that he had talked – he -- Mohawk's accountant that is, had talked with Mr. Berman, explained to Mr. Berman that the Cadillac was recorded as a gift, it would not be deductible as such.

Mr. Berman wanted to know how it would be deducted and presumably the accountant told him it would be deductible if it was treated by the corporation as its business expense.

Now, I think it might be pointed out here that from the Government's standpoint, form the standpoint of just the revenue involved getting additional taxes, we would be in a more advantageous position if this were, in fact, a gift from Mr. Berman personally as individual capacity to Mr. Duberstein because in that event, even though Mr. Duberstein would report it as income, he would treat it as a gift assuming it was a valid gift on the analysis which I propose to make.

Berman, of course, could not deduct it, personal gifts are not deductible.

The corporation could not deduct it.

And as a matter of fact, if the -- since the corporate funds were being used for this purpose, there might -- would it be a proper case of treating that $4250 which was used for that purpose by Berman so that he could make a gift in his individual capacity to Duberstein, he would be using corporation funds and there would be a constructive distribution to him on which he would pay tax so the corporation couldn't take the deduction on the money that was used to pay the car and neither could Berman.

Now, so that, as I say, the question is to whether it's gift or not, it doesn't really depend on whether Government is going to benefit it from a tax standpoint and it shouldn't depend on that.

Now, on these facts which are undisputed, the Tax Court held that it was not a gift.

The Court of Appeals reversed the Tax Court and held it was a gift.

And although they both reached opposite conclusions, both Courts stated the question in precisely the same way.

And you will find a regular pattern through the gift appealed.

The opinions are all pretty read in the same way.

The question whether it's a gift depends upon – is a question of fact depending upon the intention of the donor.

If he intended to make a gift, it's a gift and if he did not intend to make a gift, it's not a gift.

Generalizations cannot safely be made here.

Each case turns upon its own particular facts.

Therefore, we have to look to all the circumstances in the case.

And that formulation of the issue in terms of looking to the intention of the donor, did he or did he not intend to make a gift has we believe contributed to a good deal of the confusion that one finds going through the hundred odd cases that have been decided in this broad area.

The intention of the donor to make a gift that is the test.

Justice Hugo L. Black: What do you suggest as a substitute?

Mr. Philip Elman: Well, Mr. Justice Black, we suggest that the intention to make a gift, looking to the donor to see what his state of mind was in relation to this payment requires and we think that the decisions of the lower courts as well as this Court have really made this inquiry although they haven't put it in precisely the terms in which we have had them on, it really requires an inquiry into the reasons for the payment.

The difference between a Christmas cheque to an employee and a Christmas cheque to a son does not lie in any difference as to the intention of the donor to make a gift in the sense that he intends to give everything for legal and beneficial interest in the property being transferred.

The intention to make the gift language is taken from the property law where the -- where for purposes of distinguishing between a gift and a loan or a gift and a trust or sale of (Inaudible) A transfers something to B and the inquiry and its controlling its decisiveness, did A intend to make a gift?

Now if that were the -- if that were the test for tax purposes, you would have no problem.

Every time there was a gift in the property in contract law sense that would be it.

There would be no need to go any further, but if there's anything that's clear and there's somewhat confused field, it is that the property contract law definition of gift cannot control and it's never been thought to be controlling because obviously, there are many categories of voluntary payments.

They're not merely payments by employers and employees, but there are many categories of voluntary payments, gifts in the property contract common-law sense, which are treated as taxable income to the recipient, not merely bonuses to employees but such a common place of gratuities as tips and bonuses, honorary and so on.

And how do you -- what's -- how do you differentiate that kind of “gift” which is taxable to the recipient from the kind of gift which isn't and that -- and you can't answer that question by saying, “It's the intention of the donor to make a gift”, because in all cases, he intends to make a gift.

If a head waiter shows you to a fine table in a restaurant, you can say to him, “I am so grateful and I want to show my appreciation for your courtesy and your kindness, I'm going to give you $5 and I intend this to be a gift.”

Now, the intention -- the intention to make a gift is clear.

There maybe even an intention that the -- that the waiter should not have to pay income tax on it, that's immaterial.

Justice Tom C. Clark: But that's before us.

Mr. Philip Elman: I know [Laughter] I know that there are waiters -- there are waiters who have been sent to jail for not reporting it tips.

Unknown Speaker: (Inaudible)

Mr. Philip Elman: Well, there's no question no one -- no one doubts -- no one doubts that one who has -- which rendered services even and who has received payment, even though the person who has received the benefit of those services has -- was given full legal compensation, given everything that's due --

Justice Hugo L. Black: Whatever the standard here, the Tax Court found your way didn't it?

Mr. Philip Elman: The Tax Court found our way.

The Court of Appeals reversed but this case was not brought here to the -- by the Government simply in order to reinstate the Tax Court decision which from -- what we are really seeking, Mr. Justice, is clarification of the legal test for determining this question of fact.

It was asked in the preceding argument, is this a question of fact or is it a question of law?

Of course, it's a -- it's a question of fact in the sense that the conclusion turns upon the facts, but it is a question of law as to what facts are relevant and significant.

Justice Hugo L. Black: Whatever standard, I suppose you would say that up until then, we shouldn't have to bring them all up here to determine whether they decided the facts right.

Mr. Philip Elman: Mr. Justice, we are hoping that -- that in these two cases found in Duberstein, you will provide guidance to the Internal Revenue service which has -- which has these cases ever increasing number with the -- with the increase in rates of taxation.

Since World War II, there's been a proliferation of this so-called business gifts.

The search for sources of economic benefits out of tax free income will not end with these cases, it will undoubtedly go on but we are hoping that you'll give the Commissioner and the taxpayers and the lower courts guidance as to what they should look for when they look at the facts --

Justice Felix Frankfurter: Mr. Elman, what do you -- what do you -- what would please you if it came out of this Court because this case -- that this Court would formulate to the guidance for the treasury people who I'm sure with conscience would decide as follows that would improve upon, add to or subtract (inaudible) bares all the inference of Mr. Justice Cardozo's (inaudible)

Mr. Philip Elman: We -- we believe -- we believe that the dissenting opinion of Mr. Justice Brandeis as in the Bogardus case, the opinion of Judge Learned hand in the Bogardus case in 88 2d., which we think really was summarized briefly and compendiously in the dissenting opinion of this Court, accurately states the question because although the word “intention” is used, the test is really – as stated by the dissent is choosing among competing motives that dominated the conduct.

That's just another way of saying, “Why was the gift made?

What was the reason?”

Not that he intend to make a gift in the common-law property sense of conveying full beneficial and legal interest.

Did he intend to make a gift in the sense that the recipient shouldn't have to pay a tax?

But was he making the gift for a gift reason and that requires the Court to define a “gift reason”.

Now Mr. Justice Brandeis --

Justice Hugo L. Black: Are you asking (Voice Overlap)

Mr. Philip Elman: Not at all.

We accept not only the dissenting opinion in the --in the --

Justice Hugo L. Black: I don't remember accepting that case.

Mr. Philip Elman: Yes.

Justice Hugo L. Black: Has it been accepted as a rule for the general substance would stand it.

Mr. Philip Elman: The Bogardus case, I must say in all -- in all candor has -- has been a contributing factor in the -- in the lack of enlightenment which provide this area because of the use of the word “intention.”

The word intention as used in the property law sense has been -- has been --

Justice William O. Douglas: (Voice Overlap) Tax Court used the standard of intention and followed your way --

Mr. Philip Elman: We reject -- we reject the reasoning of a Tax Court as well as -- as well as the reasoning of the Court of Appeals.

It's true -- it's true that the Court, the Tax Court found for us but we did -- a per curiam reinstatement of the Tax Court's decision in this case, well it might be provide some revenue – we think it only compound the confusions.

Justice Felix Frankfurter: (Inaudible) even this is one of those situations in the law doesn't (Inaudible) in which it is important to negative rather than to strike to hit upon a magnitude failed operating of the formula, this Court would effectively clear out a lot of rubbish -- a rubbish and by rubbish I mean irrelevancy which affects the mind from the real issue.

Mr. Philip Elman: The real issue, as we see it, is to distinguish between gift reasons and non-gift reasons.

And we think that the inquiry of the trier fact has to be into the reasons.

And we think that the dividing line between gift and non-gift is the line that distinguishes between personal reasons on the one side whether they'd be good reasons, bad reasons and no reasons, whether they'd be reasons of love or reasons of hatred, whether they'd be reasons of benevolence or malevolence, a gift can be made out of -- out of -- the most meretricious reasons and then they want to get his picture on the paper, but it's still a gift if we think if it's made for any personal reason.

Justice Felix Frankfurter: If you think of any limitation and the dissent in Bogardus, it seems to me so they were made here.

Mr. Philip Elman: Yes.

Justice Felix Frankfurter: When he gets down to talking about, has it been made with the intention of services whether the part should be required more completely though full equipment have been given if so if there's a tax.

Has it been made to show good will and esteem of kindliness to other persons who have to do is serve whether to obtain etcetera, etcetera.

Mr. Philip Elman: We --

Justice Felix Frankfurter: Now, if -- if this Court cleans out as it were, then the application of these inevitably partly subjective sense they're inevitably partly subjective, aren't they?

Mr. Philip Elman: So far as an individual was concerned --

Justice Felix Frankfurter: Then the individual case ought not to be brought here and we ought not to take it.

Mr. Philip Elman: Mr. Justice, so far as the gifts between two individuals are concerned, this question of fact maybe difficult but those cases will not arise because ordinary they have no tax significance, putting charitable gifts aside and we are not talking about charitable gifts at all here.

A gift by -- a gift by the donor is not deductible by him and it's in the fact that it's not reported as income to the -- by the recipient has no -- no real tax significance.

The line that we are suggesting, which we think is based upon the structure and design of the statute as well as all the cases that you decide in this area is the difference between so-called “gifts for personal reasons” and gifts “for reasons that are so closely related to the production of income or so closely related to an income producing activity, the performances and services of the carrying on of a business for profit,” that the expenditure for that purpose is deductible as a business expense.

We think that the structure of the statute excludes the notion that you could have a deductible gift.

Justice William J. Brennan: Now Mr. Elman, where would your test leave gifts by corporations to the local Red Cross or to alien rescue or even Harvard University?

[Laughter]

Mr. Philip Elman: I'm sorry.

I didn't get the (inaudible).

[Laughter]

Mr. Justice, five charitable gifts are concerned -- there's no problem and the statute itself deals with that.

A charitable gift is deductible by a corporation.

Now, we do not contend and we could not contend that there's anything in the Federal Tax Law that prevents corporations from making gifts, they're not charitable – the leading case in this area is the case decided by the Supreme Court of New Jersey not to argue when Mr. Justice Brennan was sitting there, the 18 Smith case, which recognizes that corporations too sharing the benefits of our society may properly be called upon to share in the burden and a corporation where it may properly do so under -- under the applicable state law may make a gift.

But when you're dealing with a -- dealing it with a corporation which is making a gift not to the Red Cross or not to the victims of a disaster but to an employee or to someone who has rendered a business service of value to the corporation, then you have -- then as -- then you don't have to worry too much about the issues of fact or the triers of fact because if you have really a double barreled presumption, the presumption which almost all these cases recognized that where -- where a payment is made from an employer or an employee, there's a -- the presumption is but it's not a gift.

And the second perhaps most important presumption, more important presumption in this context is that corporate -- officers of the corporation, trustees of the corporate funds, they are fiduciary, it is a bridge of trust for an officer of a corporation to make a gift of the corporation's property to a friend for personal reasons.

Ordinarily, it is presumed that the corporation directors and officers do not engage in such breaches of trust.

They are not committing a misuse or ways of the corporation's assets and that therefore, when they do make a payment where it is conceivable that motives of a personal nature entered into it, you -- you are entitled to presume unless the taxpayer should undertake to show that the officers who made them this gift whether the breach of trust and it's been -- usually corporate funds for that purpose is really practical to them.

In the absence of any attempt by the taxpayer to make such a showing, there's a reasonable basis for the presumption that the expenditure was made for a proper corporate purpose and a proper corporate purpose is to further the business interest of the corporation.

And if that in fact is so – the presumption at least carries you that far in the absence of the evidence to the contrary, there is really no difficulty so far as trying these case are concerned.

Justice John M. Harlan: Well take the case of the superannuated employee.

Mr. Philip Elman: Yes, sir.

Justice John M. Harlan: Under your test, I would suppose it would mean that every one of those would be taxable (Inaudible)

Mr. Philip Elman: Well, if – if I think it makes a big difference.

I think it makes a big difference whether you're dealing with individual proprietor (Voice Overlap).

Justice John M. Harlan: Take a corporation.

Mr. Philip Elman: Yes sir.

Justice John M. Harlan: It's got a super superannuated employee making the gifts of $5000 on his 75th birthday, now if that's all there was, where would you come out on that?

Mr. Philip Elman: If that's all there is, I think it is clearly not a gift because the officers and directors of the corporation could not make that gift for personal reasons.

I'm assuming now that the Court accepts our formulation, not in precise terms but approximately as I've suggested it.

The distinction is really between personal reasons and there are vast panoply of personal reasons that covers in business reasons.

If it -- if it is a gift to this superannuated employee, only if the gift is made by the donor for personal reasons, a corporation pre -- presumptively cannot make use its property in order to satisfy the feelings of affection, compassion of its directors.

If the directors want to make a gift to the -- to the -- to his older employee for his long and faithful services, the personal reasons --

Justice Hugo L. Black: Suppose a stockholder --

Mr. Philip Elman: Pardon?

Justice Hugo L. Black: Suppose he is a stockholder –-

Mr. Philip Elman: Well --

Justice Hugo L. Black: Would that make any difference?

Mr. Philip Elman: I think it -- I think it might very well make a difference because then you're getting close to the situation that you had in Bogardus.

The point about the Bogardus case is that in Bogardus, the gift was not from the corporation as the -- As the majority treated it the stockholders were just using the corporation as an agent or a conduit through which they were making the gift and the Court, Mr. Justice Sutherland speaking for the Court said that the stockholders were moved to an act of spontaneous generosity.

There again, he was -- the Court was saying this was a personal reason on the point of stockholders.

Now, of course, if the stockholders make the gift, then as far as the corporation is concerned, there's been a distribution of stockholders and the corporation making the gift and there's really no harm and no incongruity in reaching out of conclusion that were in fact the gift comes from the stockholders for personal reasons, the recipient doesn't pay any tax on it.

It's a gift as far as he is concerned but the important thing is it's not deductible by the corporation and to that extent to us, it's highly significant that the so-called donor in these gift cases is either a corporation or other business entity which is engaged in activities for profit and I should like to reserve through it (Voice Overlap)

Justice Hugo L. Black: Well on statement Mr. Elman that I'm which I understood, I still think the dissent was right in Bogardus.

Mr. Philip Elman: We don't disagree.

Justice Hugo L. Black: You haven't showed me yet why we can decide as the dissent here without overruling the case.

Mr. Philip Elman: Well, I think that the Bogardus' opinion really has been overruled so far as – the point of the dissent was not only in -- in relation to the definition of a gift, but the – as I read -- as I read the opinion, it says, “This is a kind of a question as to which the trier fact could have come out either way.

And since the -- and since the Board of Tax Appeals in the Second Circuit found it was not a gift, there's no reason why we should disturb it.”

Now, if Bogardus had come up today so far as the standard of review is concerned, just difference to the lower court determinations, I don't think there's any question as to what this Court would do and the dissent was really on the – fundamentally on that.

But on the definition --

Justice Hugo L. Black: That question -- that question should be decided and quickly decided either way --

Mr. Philip Elman: Right.

Justice Hugo L. Black: --under the law.

Mr. Philip Elman: That's right.

Now -- but what we're really concerned about is giving -- giving the public and the Government a test, a legal test what's the difference between gifts and income we've undertaken at some length perhaps on due length in our briefs to –-

Justice Hugo L. Black: Well you are not asking -- you're not asking us then here to decide that on these facts, the Government is entitled to win in this case.

Mr. Philip Elman: Well --

Justice Hugo L. Black: If you are -- if you are saying it's a question of fact, are you?

Mr. Philip Elman: If Your Honors will -- will clarify the rule of law governing these facts, I don't think there's any question as to how the facts would square with -- with the rule of law.

I think even under the -- under the test that's been applied by the lower courts here, it's clear that this was here -- was an effect with quid pro quo in exchange for services even though there was no hope or expectation.

Justice William O. Douglas: But under -- under your test, all we have to it seems to this corporation making the so-called gift as it was, it couldn't be a gift unless perhaps all the stockholders agreed to it.

Mr. Philip Elman: Well I think even though that all the stockholders agreed to it, that wouldn't necessarily establish it as a gift, and they wouldn't have any further question of who made the gift.

But I -- I think -- I think that we are -- we're not putting this thing in terms of corporations can't make gifts for tax purposes.

What we are saying here is that the --

Justice William O. Douglas: That's the quote directors couldn't act for the corporation out of the feeling of their charity to superannuated employee.

Mr. Philip Elman: We're saying -- we're saying that where -- we're saying that where a corporation makes a gift and either the corporation is making a gift, just as in the case of many other taxpayers, you have to decide whether the reasons which prompted the gift, the inducing force, as Mr. Justice Brandeis said the dominating motive was a proper gift reason or not.

And we think in the case of a corporation, this presumption that derives not from the federal law but from General Corporation Law aids the trier of fact in making that determination.

That's essentially our position.

We point this out simply to deal with the -- deal with the suggestion that if you look to the reasons why the gift was made, you have to cycle analyze and do that all kinds of things that is impossible and so on.

Justice Charles E. Whittaker: Mr. Elman, isn't that true actually whether they use multi reasons of what not would be the ends out to get back to was their act, don't they do that intent, will you not?

Mr. Philip Elman: Well I think the State that there's a donated intent in all these cases is to begin the problem is not to end it, because in every cases that's in the book something the tax -- it is a donative intent and it doesn't make any difference how clear that intent was expressed with this.

The (inaudible) employer says, “I intend in every conceivable way that this shall be a gift for all purposes and still, if it's -- if he's -- if he -- if the recipient of the gift is a 100% stockholder of the corporation, the President and the corporation is making the gift in one of these cases, the President has a 74% stockholder and he -- and he voted himself a wedding gift to $7500.

There's no question about the intention to make a gift, it's perfectly clear.

But the --

Justice Charles E. Whittaker: But doesn't our Court -- our (inaudible) have said that his own declarations of serving are not conclusive at all.

Mr. Philip Elman: Well, I don't see why you have to treat that as a sham, and then they'd be put in -- the corporation is expressing a genuine intention that this shall be a gift.

There's no -- this isn't a sham.

It's a gift because a gift as the courts define it in the common law is delivery by the donor accept this by the donee plus an intention of making a gift.

Justice John M. Harlan: Well here's a (inaudible)

Justice Felix Frankfurter: Do you think that some of the matters and that intent and intention in almost every branch of the law either confusing instead of an aluminating thing in order to retire.

Mr. Philip Elman: The intention -- the intention I think is probably here to stay, Mr. Justice.

And -- and --

Justice Felix Frankfurter: Well I -- well I don't --

Mr. Philip Elman: -- and depend --

Justice Felix Frankfurter: I spent 20 years -- 25 years speaking and I solemnly sworn never to use it and if I did, it was non-conscious betrayal of my purpose.

Mr. Philip Elman: Well I think that academic freedom gives more than that (Voice Overlap) I -- I can't --

Justice Felix Frankfurter: The judges having been more -- they don't have the other things making fun of you.

Mr. Philip Elman: Well I -- I think -- I think our point on that would be that while the intention is a confusing word, it appears in almost every area of the law and whenever it's used, it's used of the slightly different emphasis --

Justice Felix Frankfurter: Why do you have to use it?

Why do you have to use it?

Mr. Philip Elman: We have to use it because the Supreme Court has used it.

Justice Felix Frankfurter: Then why don't we have to use it because you use it [Laughter].

Justice Hugo L. Black: -- your condition is their desire but exceeded the difficult draw.

Mr. Philip Elman: We don't think it's really going to be.

It will be hard in the individual case which won't come up in the case --

Justice Hugo L. Black: Like a question of judgment at the end isn't it?

Mr. Philip Elman: In the case put by Judge Learned, if I may continue sentence.

Chief Justice Earl Warren: Yes, you may.

Mr. Philip Elman: In the hypothetical case put by Judge Learned Hand in Bogardus case that the patient adding something to the bill of the surgeon.

It maybe that the surgeon has just not adequately appraised the value of its services and the -- and the patient is just adding something on to it just as the client add something to the lawyers bill and it's still compensation to the lawyer or the doctor.

But if -- but if -- but the addition is made out of feelings of affection or regard, and I think this is probably more vivid and in relation to a nurse rather than a doctor who has rendered [Laughter] services to a patient during the long illness where feelings of affection very frequently develop.

Where that -- where that is done, you may have a difficult question of fact, but you don't have that question in the ordinary corporate situation often discussed, thank you very much.

Chief Justice Earl Warren: Mr. Elman, you may have five minutes in rebuttal.

Mr. Philip Elman: Alright.

Chief Justice Earl Warren: We took much of your time in questioning.

Mr. Philip Elman: Well I -- I --

Chief Justice Earl Warren: Mr. Kusworm and if you Mr. Kusworm if you should need five minutes more, you may have it too.

Argument of Sidney G. Kusworm

Mr. Sidney G. Kusworm: Thank you, Mr. Chief -- Honorable Chief Justice and Associate Justices.

This is the greatest court in the land. While we're speaking of Bogardus, I was just wondering in the reading of the briefs in these three cases whether they are not -- they were written by the same distinguished lawyer.

In the Kaiser case, here's what the Government said about Bogardus.

While it maybe possible to articulate such a difference, we think that rather an attempt now to rationalize Bogardus in new terms, it ought to be recognize simply that it reflected and approached that has since been rejected by this Court and is no longer of value as present.

Now in the brief in the Stanton case, the same question on Bogardus is answered this way.

The Bogardus case is reconcilable with the suggested definition of gifts.

That is the use of motive for the determination of a gift.

In the Kaiser brief, the Solicitor General also speaks about the Bogardus case in a different way.

And so they seem to be some confusion.

Now, if Your Honors please, while Mr. Elman has given the facts in this case, and then very fair there are one or two things that he hasn't said that I think ought to be said in order to clarify the situation.

Duberstein and Berman, Berman was the head of Mohawk were friends and as Mr. Rauh said, they have frequent business dealings with each other and frequent conversations over the phone and they were very friendly.

And every once in a while, Berman would ask Duberstein if he knew of somebody that handled a certain product that Duberstein didn't handle.

On this particular day, in this particular instance, Berman said to Duberstein, “Do you know of anybody who might be interested in buying so and so,” mentioning materials and Duberstein said, “I don't know.

Why don't you try so and so and so and so, because I haven't any idea whether they can use them or not.

Now that's the last of Duberstein heard about.

Until months and months later, now mind you Duberstein didn't contact any of these people.

He had absolutely nothing to do with trying to see what (Inaudible) material.

He didn't talk to any of them.

He didn't write any of them.

He had no communication with any of them.

And the telephone call comes from Berman and he said, “I got a Cadillac car and I want to give you as a gift.”

And Duberstein said, “I don't want a Cadillac, sir I've got two cars [Laughter].”

I got a car from myself a Cadillac and I've got a car for my wife and he said, “But you got children.

You could always use the car and I want you to take the car.”

So he took the car.

Justice Hugo L. Black: Did he protest?

Mr. Sidney G. Kusworm: Did he what Your Honor?

Justice Hugo L. Black: Did he protest then?

Mr. Sidney G. Kusworm: He didn't -- he didn't protest.

He didn't said anything and he didn't protest.

Justice Felix Frankfurter: That was -- that was an enforced gift, wasn't it?

Mr. Sidney G. Kusworm: Well if Your Honor pleases, I'm not going to make an interpretation.

That's the business of this very distinguished Court.

But the point I want to make is that that's the last Duberstein heard about it for four years agent comes in to it.

Justice Hugo L. Black: A what?

Mr. Sidney G. Kusworm: An agent, a revenue agent.

[Laughter]

They do come, Your Honor [Laughter] and that he checks Duberstein, “What is the – what about this Cadillac?

He said, “Well what about it,” some worm out now.

He said, “But you got to pay a tax on it.”

He said, “I don't have a play a tax on it.

This was a gift.

I didn't render this fellow any service.

I didn't get him many customers.

I am not the one in business.

I'm not a stockholder.

I'm not a director of this company.”

Just as Your Honors said, you practically forced the thing on me, I didn't need it.

Well the agent said Mohawk deducted it.

When he said, “Why didn't you go after Mohawk?”

Now this is off the record and the agent said the statute of limitation is gone by.

[Laughter]

Well then he said, “Why don't you after Berman?”

He said, “Berman is dead.”

[Laughter]

Justice Felix Frankfurter: (Inaudible)

Mr. Sidney G. Kusworm: I was going to say it that he don't want to pay it but that's what he did say.

Now, that's this case.

So we go to the Tax Court.

Duberstein is the only witness other then the accountant because when this man said, the agent said, “You have to pay a tax on it”, Duberstein called up his colleagues and what about it” and he said, “I don't know anything about it.

I never got a 1099, you never got a 1099.”

That's the slip that the Government sends out to somebody to gets over $600.

And he said, “Why don't you check into it?”

So he said, “All right I will.”

So we called up Berman's accountant and he said, “Did you ever send me a 1099?”

He said, “Certainly, I send everybody and I've got registered receipts for them.”

Well he said, “We got a registered receipt for this one?”

He said, “Let me look” and he looks and he said, “No I haven't gotten it.”

It's the only one I haven't got.

Well he said he didn't get any 1099 from you or anybody else.

He said “How does it come” that Duberstein is being charged with it, he said, “I don't know.”

But he said, “I'll tell you what happened.

I called Berman's attention to this item the $4250 for a Cadillac and I said, “You have to pay the tax on it.”

And he said, “I don't want to pay a tax on it.

How can get out of paying a tax on it?”

He said, “But what happened?”

Well we said, “I called Duberstein up on the telephone and I asked him to give me the names of some people that might be interested and he told me.

So the accountant said, “Well, if you want to (Inaudible).

He said, “All right that just we'll do.

We'll call the (Inaudible)” and that's exactly what happened to last this case.

Now I say to Your Honor --

Chief Justice Earl Warren: Who made -- who made the gifts?

Who made the gift?

Mr. Sidney G. Kusworm: Berman made the gift as far as Duberstein was concerned, Your Honor.

Chief Justice Earl Warren: Well.

Mr. Sidney G. Kusworm: I mean I thought he knew about it.

Berman was the president of Mohawk and Berman asked him about certain materials that Mohawk was selling.

But when Your Honor as who made the gift, I might answer by saying to Your Honor that I'd like to know the reason that the Solicitor General says that intent is not the rule, but motive is the rule.

In other words, it's a question of “Why” not “What.”

Now --

Justice Potter Stewart: The – although so far as Duberstein was concerned, Berman had made the presentation of the Cadillac.

It was on Mohawk's books, that's' where the deduction appears, is that right?

Mr. Sidney G. Kusworm: As far as we know, Mr. Justice Stewart, Your Honor, it was on Mohawk books but of course that's only because the revenue agent told us that.

Justice Potter Stewart: I see.

Mr. Sidney G. Kusworm: We had no knowledge at all on whose books it was or if it was on anybody's books.

Now the point that I want to make is, if I may, that this is not a matter for this Court to determine, that this is a matter for the Congress to determine.

And I think, Your Honor, Mr. Justice Black made the suggestions when the Government was arguing this case.

In other words, a corporation can make a gift.

For 15 years we've been going by the usual and accepted way of doing businesses as far as gifts were concerned.

Now, if there is to be a clarification and the gift is to be by motive and not by intent then it's for the Congress to say, and not from the Supreme Court of the United States just as in (Inaudible) cases, where people who were giving gifts for answering questions on the television and weren't paying taxes on them, they didn't come to the Supreme Court.

They went to the Congress and the Congress passed Section 74, which cured that situation and which made all of these gifts taxable.

And that's what ought to be done in this case if there's any question of the Solicitor General wanting motive taken for intent and wanting clarifications and all that sort of things.

This Section is very clear.

This section doesn't need clarification.

It needs addition of the things that they want should be there.

And exclusions from gross income include gifts, requests, and devices, the value of the property acquired by gift request, devise or inheritance etc.

Now, that's very plain.

Now if there's to be an enlargement of that, then it is for the Congress of the United States to say and not for the Supreme Court.

Now, getting back, I had all of these various distinctions that I was going to make in the various cases that have been cited but I am not going to do that.

I'm just going to include by saying what was said by the Court of Appeals for the Sixth Circuit.

And that was, if I may take for the moment please, I'm sorry but on the blue prints of my argument I lost the place.

We have repeatedly held that the taxpayer has made out his case when he has put in proofs clearly and distinctly tending to show determinating facts.

The presumption of the Commissioner is right and it's procedural and cannot survive such proofs unless they are challenged by contrary proofs or destructive analysis.

And we've gone so far as to say that the taxpayers' affirmative evidence made itself contain the necessary challenge and furnish the material for such analysis.

We find that the taxpayers' evidence clearly and distinctly offered proof that the Cadillac car was in fact a gift.

It was not challenged by contrary proofs or destructive analysis.

It maybe contended that in such a case as this, we should add suspicion into presumption of correctness to aid the Commissioner's assessment of the deficiency.

This we cannot do.

This matter should be decided on evidence.

In the case of Landsberg versus the Commissioner -- versus the Commissioner supra, Judge Simon's characterized such attitude as follows that most the Board's finding rest upon mere suspicion upon an inference and generosity of the kind here involved is so rare that it must necessarily from that fact alone be suspected.

We hold that the taxpayer met his burden of proof that the Cadillac was a gift and the decision of the Tax Court is accordingly reversed.

Thank you very much.

Chief Justice Earl Warren: Mr. Elman, you may take your final minutes now.

Rebuttal of Philip Elman

Mr. Philip Elman: Thank you (inaudible).

Mr. Kusworm referred to the Pot O' Gold case, a case in the Tax Court.

I would like to take a minute to discuss the problem with that case raised.

In that case a radio show picks a name out of the telephone directory at random and called you up if you are home, you got $900 and the Tax Court said, “That was a pure case of the recipient receiving something for nothing.

He did nothing at all and therefore it was a gift.”

Now, that something for nothing test has been much relied upon by the taxpayers in this area and I think it would -- might be worthwhile to say just a few words about it.

It's taken from the opinion of Mr. Justice Reed in the American Dental Case in 318 U.S., which was a cancellation of indebtedness case.

And that case itself has been very substantially limited if not overruled in the subsequent Jacobson case where Mr. Justice Reed dissented on the ground of this Court, it was being overruled.

But apart from that, the something for nothing test which focuses on what the donee did is wholly inconsistent with the intention of the -- of the donor to make a gift test.

Intention test whatever its defects as a formulation that at least focuses the inquiry on the man who makes -- who makes the transfer on his state of mind.

The something for nothing test says, well it doesn't make any difference what the intention, motive and so on whether it was a selfish interest, business interest.

If the man who receives has received something for which he has given nothing, then to him it's a gift.

Now those cases, Pot O' Gold and similar cases were all decided before Glenshaw.

In the Glenshaw case, this Court held that a windfall maybe income.

Justice Potter Stewart: Isn't it true also that the Pot O' Gold case was expressly corrected by the 1954 statute?

Mr. Philip Elman: Yes, the 1954 Code does take care of prize and that kind of a prize would be taxable, but we think the Pot O' Gold was wrong under the 1939 Code for the simple reason, that a windfall and a gift are not synonymous.

In Pot O' Gold or in any other situation where somebody has received something for nothing, it's a windfall.

Take the purest case of a windfall, a literal case.

A man is walking down the street and the wind blows a hundred dollar bill in his direction, he reaches out, puts it in his pocket, he looks around, there's nobody in sight.

Is that a gift, certainly not?

Its not even a gift in the property law says because the original owner of the bill may be still looking for it.

He's not intending to make any gift.

And even -- even where -- even where the gift again in quotation mark --

Unknown Speaker: (Inaudible)

Mr. Philip Elman: Pardon?

Unknown Speaker: (Inaudible)

Mr. Philip Elman: I don't -- I can't cite any cases but the treasury cases (Inaudible) to this and I think that under the rationale of Glenshaw it's income then it is certainly not a gift.

Justice Potter Stewart: It didn't tell the -- it didn't tell if it has lost it and comes around again.

Mr. Philip Elman: If it's -- if it's kept under a claim of right and is unrestricted use in enjoyment, I take it the decision of this Court say it's income.

Now, this point that there is -- that there is nothing done by the recipient has -- has attributed -- contributed to a good deal of confusion in this area particularly in the Widows Bonus cases because there the widow has herself not rendered any services and the courts said, well she hasn't done anything, she's -- it's something for nothing as far as she is concerned.

And the courts I must confess have been -- have been seriously rather restraining this area by the rulings of the Commissioner himself who we think was responsible for this by initially making an erroneous ruling which the courts followed and then withdrawing it when it was too late.

Now, if the something for nothing test is -- is accepted, as I say, it would not only be in the face of everything -- of all the case law in this field which focuses on the situation from the donors our position, but it is also as a matter of analysis wrong because it confuses gifts and windfalls.

Thank you very much.

Print this transcript Transcript: 

Argument of Clendon H. Lee

Chief Justice Earl Warren: -- Alden D.Stanton et al., Petitioners, versus United States.

Mr. Lee, you may proceed with your argument.

Mr. Clendon H. Lee: Mr. Chief Justice, may it please the Court.

It might be responsive to Mr. Justice Douglas' comment yesterday as to stockholder approval.

To state, in this case director, vestry and churchwardens of Trinity Church are constituted the corporation under their charter from Queen Anne.

And that therefore, in this case, we do have the effect of stockholder approval.

The actual body corporate approved it insofar as that is legally possible.

I think, we might begin by referring to the fact that on this appeal, this certiorari --

Chief Justice Earl Warren: What do you mean as far as it is possible?

Mr. Clendon H. Lee: No further approval by any person was legally conceivable or possibly, Your Honor, under the --

Chief Justice Earl Warren: Well --

Mr. Clendon H. Lee: -- charter.

Chief Justice Earl Warren: -- of course, you meant, if -- if the corporation had -- had the power to do it.

Mr. Clendon H. Lee: But in this case, the corporation exercised its power to the fullest in view of the fact the director, vestry and church wardens are the very ones who made the gift and no further approval was legally conceivable or possible.

Chief Justice Earl Warren: Well, do the -- does the -- the corporation that made the -- made the gift have the right to make gifts of that kind?

Mr. Clendon H. Lee: Well, the Government did not raise, at any point, the issue of corporate capacity.

Now, if they were to raise that point either under Federal Rule of Civil Procedure 8 or Federal Rule 9, then they would be in a position to raise that point here.

The manner in which they've raised it, they're asking this Court to create a nationwide body of corporate incapacity in complete violation and in complete conflict with the Erie Railroad against Tompkins, they're asking this Court without having the charter, the colonial charter of Trinity Church here, on appeal on certiorari.

They're asking this Court, in effect, to do away with the Dartmouth College case when Trinity Church is not a party to this proceeding.

Chief Justice Earl Warren: Well, I -- I didn't suppose that the corporate capacity would come directly under review, but -- but might it not be -- might it not be important to determine whether it was a gift or not?

Mr. Clendon H. Lee: The Government could have raised that point, Your Honor.

And the Government stipulated on trial in the reply brief that's referred to on record pages 18 and page 60.

The Government stipulated that the only question involved was the question of the nature of the payment to Mr. Stanton.

Now, here, they have purported to raise a question of corporate capacity and they have done that not through the familiar process of stating that Congress, for purposes of bankruptcy, for purposes of taxation, for so many purposes, may describe the legal incidence of certain transactions, may say what consequences flow for the purposes of federal law.

They have said, “Instead, we must go back and find an inherent corporate incapacity to make a gift.”

And they have done so by citing a few cases.

We only got the Government's brief and printer's proof form of 78 pages plus 30-page appendix on last Friday.

And I'm afraid I haven't been able to deal in detail with all their points.But they cite questions like Rogers again Hill.

Hill is relating to eluding the corporation.

I don't think they have any bearing on this point at all.

This inveterate principle of federal corporation law apparently wasn't clear to the Government just a few weeks before, when it did the Duberstein brief and they're asking this Court in the first instance, to promulgate this federal rule of corporate incapacity and we submit that it's wholly improper for that question to be here.

And the Government attempts to put this Court in that position by conceding all the evidentiary facts.

The case of Mr. Stanton is not referred to in the Government's brief until page 77.

They concede the evidentiary fact.

They expressly concede, on page 77 of their brief that the vestry and director who is part of the corporation necessarily, intended to make a gift.

And I think they must necessarily be understood as also conceding that the majority in the Court of Appeals below made certain patent errors in reviewing the facts.

Now, one of those particular errors, I -- I should like to refer to at some length, unless this Court perhaps, not perceive it.

The resolution awarding the gratuity to Stanton, which appears on page 4 of the main brief -- page 5 of the main brief, “Be it resolved that in appreciation of the services rendered by Mr. Stanton as manager of the estate and so on.

A gratuity is hereby awarded him of $20,000 and so on.”

And then, there's a proviso, “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.”

Mr. Stanton resigned on November 5.

His -- this resolution was adopted November 19.

The effective date of his resignation was November 30.

Under this resolution, any treatment of the gift to him, as anything other than a gift, was precluded.

If Stanton had died, his legal representatives could never have maintained that further pension rights accrued after the effective date of his resignation.

He no more gave up anything under this resolution, than he gave up future salary.

There is -- the resolution itself is really the -- the copper riveting, so far as the vestry was concerned, to preclude its being treated for corporate purposes or by legal representatives as anything other than a gift.

Now, having referred to that one particular error and the Government having conceded it on its brief in this Court, I think that it might have been perhaps preferable if they had joined in petitioner's petition for rehearing in the Second Circuit to permit the Second Circuit to correct that error.

And then consider its opinion in that light, rather than trying to precipitate the issue in this Court with the Duberstein case at the same time.

Now, I shan't, at this point, refer to the clusters of evidentiary facts which are recited on pages 24 and 25.

Justice Potter Stewart: Before you --

Mr. Clendon H. Lee: Yes, your Honor.

Justice Potter Stewart: -- proceed.

I -- I didn't quite catch the factual error that you referred to.

Mr. Clendon H. Lee: The factual error is an error in Judge Hands' opinion where he stated that, “Stanton gave something up under this proviso which would presumably be some variety of consideration.”

In lieu of his pension rights, he got this, which isn't a fact at all, because he got all of his pension rights.

And it's the misreading of that proviso which the Government conceives, I believe, under its brief -- in its brief in this case, which caused that unfortunate mistake in the Second Circuit.

And that's why I say that would've come with better grace, if the Government had joined in our petitioner for rehearing in the Second Circuit.

Now, the fact that stand (Voice Overlap) --

Chief Justice Earl Warren: Do you -- do you ask us to read that -- read out that language above pension -- pension rights entirely as being -- as being inconsequential?

Mr. Clendon H. Lee: It is completely inconsequential, Your Honor.

And if it's to be given any meaning at all, it reinforces the nature of this as an outright grant without consideration, because he kept everything which had accrued through the effective date of his resignation.

And in the record, page 34 in the record, one of the trustees of the pension fund refers to his voting to refund the money, that is Stanton's own contribution, which he was entitled to get.

On page 51 of the record, Stanton had contributed $1590 to the pension plan of Trinity Church and $594 to the pension plan of Trinity's real estate subsidiary.

These amounts were refunded to him which was one of the elections which he could take under the pension plan.

So that he did not give up anything.

He received the $20,000 gratuity and he had the option or the election of either leaving that in the pension plan or taking a cash refund.

And he took the cash refund.

And it's just that one unfortunate error, which I want -- wanted to refer to at some length here, before going into the cases.

The Government relies upon this Court's opinion in 1956, Commissioner against LoBue or LoBue, in which a Stock Option Plan was offered to employees as an inducement, as an incentive to keep them on the job, to promote the business of the employer.

Now -- so the Government says, “This substitutes motive for intent.”

And bearing in mind Mr. Justice Frankfurter's remarks yesterday on the unfortunate necessity of dealing with states of mind, I should like, if I may, to refer specifically and perhaps pedantically to the LoBue case.

This Court unanimously, speaking through Mr. Justice Black, and I've quoted this on page 7 of petitioner's reply brief, stated, “But there's not the slightest indication of the kind of detached and disinterested generosity which might evidence a gift in the statutory sense.”

These transferors of stock bore none of the earmarks of a gift.

They were not made by a company engaged -- they were made by a company engaged in operating a business for profit.

And the Tax Court found that the Stock Option Plan was designed to achieve more profitable operations by providing the employees with an incentive to promote the growth of the company by permitting them to participate in its success.

Under these circumstances, the Tax Court and the Court of Appeals properly refrained from treating this transfer as a gift, that company was not giving away something for nothing.

Now, in the Stanton case, something was given away for nothing.

There was no past consideration because he got $22,500 a year, salary.

His successor got approximately half that.

So, in Mr. Justice Brandeis' language, “Past services had fully requited.”

No further acquittance was necessary.

There was no future consideration because he did nothing, nor did he refrained from doing anything in the future.

There was no covenant not to compete, no consultation.

It was not a substitute for the pension rights.

It was not consideration in any way.

Now, we believe that the key to intent to make a gift lies in the presence or absence of consideration.

This is the traditional element of a gift, an absolute grant without consideration.

Without consideration is the realistic test.

Motive can never be a realistic test.

Motive, if this Court were to direct the lower courts to pursue motives, we would have the sort of the question which I had to participate in several years ago in the Third Circuit, where the Government revoked retroactively, the tax-exempt status of a charity on the ground that the assets of that charity might have been used to provide a source of raw materials, if needed by the donors and the founders of that charitable foundation.

Now, Judge Goodrich, in the unanimous court, would have absolutely nothing to do with that point of view.

And I don't think that the point of view of Government by motive has very much to commend itself to this Court.

We'll get in the filed of -- of constitutional vagueness.

Look at murder.

Look at anything.

Motive arises all of the time, but sometimes we have to look at the actual events and that aspect of the event which involves the state of mind.

We can't escape from some dealing with the states of minds, but any antecedent motives, any states of mind, which a person might have, certainly cannot form the basis for directions by the this Court to the lower courts.

It's -- I think, also of importance that the Government concedes here that affection is not the sine qua non of a gift.

The Government expressly states that affection is only one of the elements which might be taken into consideration.

And they refer to an opinion of Mr. Justice Douglas for this Court in Robertson, where a person gave up certain public performance rights to a musical composition, in a contest, in which he entered and he received a prize and that was held to be income.

And this Court differentiated the case of -- where something is given out of affection and certain other impulses and affection was one of the examples.

Now, certainly, good emotions certainly, can't be the criterion of a gift.

Wiley Oddyseus to Priam with the Trojan Horse, Greeks could bear gifts without having affection for Trojans.

And I think that we -- we must restrict ourselves to the very basic concept, the traditional property and contract law concepts of gift and whether it is with or without consideration.

Now, just very briefly, reviewing the facts with respect to Mr. Stanton, so if the Court will have it in mind --

Chief Justice Earl Warren: I didn't quite understand your last statement regardless you said, whether it was with or without consideration.

Do you -- do you mean that even though there was consideration for the -- for this payment that was made that -- it -- it would still be a gift?

Mr. Clendon H. Lee: It could be your Honor, but consideration would be one of the elements which a trier of fact should take into -- into -- bear in mind in determining whether it was an absolute gift and with all consideration, is one of the most significant points.

Chief Justice Earl Warren: Well, I understood you to say that --

Mr. Clendon H. Lee: Yes.

Chief Justice Earl Warren: -- that should not be considered.

I didn't understand you to say that it -- it was here, which you said without regard to -- to whether there was consideration or not.

Mr. Clendon H. Lee: Perhaps I -- I wasn't at all fair and if I restate what I think I should've said that the most important factor in evidencing the intent to make a gift is the presence or absence of consideration.

And that is something which the trial of court, listening to the testimony and looking at all of the facts and circumstances surrounding this grant which came as a surprise to Mr. Stanton --

Justice Hugo L. Black: What is what?

Mr. Clendon H. Lee: That's one of the things which the trial court --

Justice Hugo L. Black: Oh, was he (Voice Overlap) --

Mr. Clendon H. Lee: -- should bear in mind very carefully and, in this case, the trial judge listened to it and decided in favor of Mr. Stanton.

Justice Felix Frankfurter: By consideration, I take it, you don't mean the requirement of the contract where a consideration is required that you mean a -- a total absence of any -- of any moving cause except benefaction.

Mr. Clendon H. Lee: I think that's --

Justice Felix Frankfurter: Or by benefaction I would -- maybe that's a bad word.

I include believing people of -- of stressing etcetera.

But you don't mean an enforceable consideration --

Mr. Clendon H. Lee: No, no I don't --

Justice Felix Frankfurter: Something that's said because of the -- because of the presence of consideration in the contract, you don't mean that?

Mr. Clendon H. Lee: No.I -- I think --

Justice Felix Frankfurter: You mean that --

Mr. Clendon H. Lee: I think --

Justice Felix Frankfurter: You mean some -- some earthy -- who then showed practical reasons other than benevolence or gratuity, otherwise, the two were troublesome.

Mr. Clendon H. Lee: Yes.

I -- I see your point and I -- I think Your Honor's point is quite well taken.

The Government, in its brief, I -- I believe, tries to -- to use the expression, “bargained-for exchange.”

I don't think that quite is the point.

I think where there's no anticipated benefit, no incentive and in Mr. Justice Brandeis expression in Bogardus, where past services had been fully requited, I -- I think there, a trier of fact can properly find a gift.

Now, if employment has been the occasion for knowing someone, it seems to me that that should not vitiate a gift.

Now, the Government asks here that corporations be completely, absolutely, from the beginning of the republic to the present day, be disabled from making a gift.

And that faithful stewards and old retainers be disqualified from their statutory right to receive it.

And the Government asks for definitions.

Now, Congress has not defined the gift.

The Government appends 30 pages of cases.

The facts in one case or one way, the decisions in other way, now, if there are questions of fact in the system of jurisprudence, there are going to be differences in results --

Justice Felix Frankfurter: Well, all --

Mr. Clendon H. Lee: -- in the trial courts.

Justice Felix Frankfurter: -- all substrate is even completely requited.

There comes to my mind since they speak of -- of patients sending the doctor -- it's a bigger return in the -- and the fee calls for.

It comes to my mind that capricious conduct, the one of greatest lawyers in the history of the American Bar, John G. Johnson.

He was very capricious in the fiends that he charged crimes.

And I happen to know of a case where he sent in because he -- a bill of -- for $100.

And my friend was an officer of the corporation to whom he gave an opinion.

They send him -- the back of the $100 and on reflection, they though this is silly.

Now, they -- he was wholly requited.

John G. Johnson was fully required for that $100 settlement.

But the next day, they send them a check for $5000.

Now, would that have been a gift?

Mr. Clendon H. Lee: I think in that case, that would -- that would clearly have been compensation, Your Honor.

I think if the person is capricious, that's one of the facts which the trial court would take into -- into mind.

And I'm sure that Mr. Justice Brandeis under -- under his views would not consider $100 payment for a corporate opinion to the full acquittance.

Justice Felix Frankfurter: Well, if -- and so -- not another penny could've been sued for or -- or a less imaginative corporate officer or corporation might have said, “Well if that's all John G. Johnson, if he had fun out of this case, or he --

If he's glad to render that opinion and show up some piece of the legislation at this concern.

Mr. Clendon H. Lee: There was disproportion -- inherent disproportion, I should think, between the value of the services --

Justice Felix Frankfurter: Well, he may not (Voice Overlap) --

Mr. Clendon H. Lee: -- and what discharge.

Justice Felix Frankfurter: -- by sending JPMorgan a bill for $1 million, just to make up for it.

Mr. Clendon H. Lee: Well, I think that the -- the caprice of some particular lawyer would be something which the trial courts should properly bear in mind, Your Honor.

In this case, Mr. Stanton was quite --

Justice Felix Frankfurter: I was merely talking to myself to the phrase, legally requited Now, I think John G. Johnson, my instance was legally requited when that $100 check reached him.

Mr. Clendon H. Lee: Undoubtedly -- undoubtedly, he said --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Clendon H. Lee: -- to go for $100 and he couldn't have sued for more.

But in this particular case, the actual facts are that Mr. Stanton was paid $22,500 a year and his successor received $12,000 a year.

So that, I think that his -- his services where quite adequately requited.

Now, I should like, if I may, to save the rest of my time for rebuttal, Your Honor.

Chief Justice Earl Warren: You may.

Mr. Barnett.

Argument of Wayne G. Barnett

Mr. Wayne G. Barnett: Mr. Chief Justice, may it please the Court.

Having vigorously argued yesterday, the strike benefits are taxable.

I would like today, to seek more hospitable ground by disassociating myself from that argument.

In our view, with the main controlling issue in Kaiser case was really not the “gift” issue at all, but -- but the income issue.

Whether relief payments regardless of the interest that they pay or -- or the kind of thing that Congressman Taft and it's included in the definition of income.

Now, that problem is not involved in Duberstein and Stanton at all.

We are here concerned solely with this specific purposes and policy of the gift exclusion.

What is a gift?

Now, the extinction between gifts -- the gift problem and the income problem as Mr. Elman pointed out, also distinguishes the problem here, the problem on the Pot O' Gold and the other advertising giveaway cases, which -- though they stated the results in terms of gift, really turned on the considerations that go into the income question.

Chief Justice Earl Warren: Will you speak a little louder please, Mr. Barnett.

Mr. Wayne G. Barnett: I'm sorry.

Chief Justice Earl Warren: Or a little closure to --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- the microphone --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- one or two.

Mr. Wayne G. Barnett: The first case, the Pot O' Gold case, itself, is evident in the opinion, that they're talking about Eisner and Macomber, that the receipt was received without any investment of capital, without any effort.

And therefore, in the Eisner and Macomber idea of income, it was not income.

And we think that really was the basis for those decisions and they likewise did not involve the gift issue.

Now, is this case that poses the gift issue in its most basic and most litigated form, payments to employees to their families?

There'd been perhaps, over 100 decisions in the area and still there's no clear line for what is and what isn't a gift.

This case sharply presents the issue of the -- Mr. Stanton worked for the church for 10 years.

The church gave Mr. Stanton $20,000.

Now, the problem in resolving that is primarily a problem of terminology, we think.

That's the reason for the -- the troubles the courts have had -- have had.

Now, here --

Justice Felix Frankfurter: But you say the problem was one of terminology or --

Mr. Wayne G. Barnett: Was the problem --

Justice Felix Frankfurter: -- confusion in dealing with the problem --

Mr. Wayne G. Barnett: Yes.

Yes.

That -- that's right.

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Wayne G. Barnett: Now, that's illustrated here by the argument that the question is one of consideration.

Now, is -- the service has existed and the payment existed.

And the problem is to tie them together.

How do you decide whether one is for the other?

And you can't answer that by saying it -- it is or is not a consideration.

They just begs the question.

The courts in trying to make -- to make the connecting tie between the one and the other have generally phrased the question as whether the payor intended to pay for the services.

Now, the problem in this -- what they meant by intent.

Now, used -- in a technical sense are precisely used.

Intent, we think, is an act of will.

It's -- it necessarily implies power of choice.

I can intend whatever I want to intend.

Now, if the courts mean intent in that sense, it necessarily means that the question turns on what the payor will.

He can will the payment to be a gift or will it to be compensation.

And its -- one thing is clear, that's not what the courts mean.

They don't -- they don't mean that the payor can specify whether it's going to be a gift or compensation.

What we think they mean, if you look to what Government's decisions, rather than the language, is what moved the payor to make the payment?

Why did he make the payment?

And that relieves all we mean by motive to distinguish motive from intent.

Justice William O. Douglas: Why did the -- so the -- with this case is somewhat a difficulty that I expressed in the first case you argued and that is that the discussion seems to me to be in very large degree off in the abstract world, like an academic discussion in classroom.

Here, you have a -- here, you have a District Court looking at all these conflicting inferences and saying this is a gift within the meaning of the Revenue Act, is that right?

Mr. Wayne G. Barnett: Yes.

Yes.

Justice William O. Douglas: Then you have a Court of Appeals -- by divided vote reversing (Inaudible)

Mr. Wayne G. Barnett: Yes.

Justice William O. Douglas: Now, if you have the District Court looking at all of these conflicting inferences and saying, this is not a gift and the Court of Appeals affirming him, then I could understand your -- your argument.

But -- but where are you going to -- why are you going to leave?

How are you going to resolve all these conflicting inferences -- I -- because that obviously, you can make this either a -- a gift or not, depending upon your premature starting point, I would think.

Mr. Wayne G. Barnett: Well -- well --

Justice William O. Douglas: Or the -- the weight you give to various statements or facts and so on.

Mr. Wayne G. Barnett: But -- we think, the problem really isn't one of evidence.

And it isn't one of inferences drawn from evidence so much as it is, what kind of fact you're looking for.

Now, what it is you -- you hope to find, when you look at the evidence?

And the problem -- that has never been spelled out.And what we hope to do with these cases is just to try to get an articulation of what it is that the trial judge is supposed to look for.

Justice Felix Frankfurter: Did Judge (Inaudible) reveal what he was looking for --

Mr. Wayne G. Barnett: No, sir.

Justice Potter Stewart: He did not make any formal findings (Voice Overlap) --

Mr. Wayne G. Barnett: No, sir.

Just one finding, the payment was a gift.

Justice William O. Douglas: But you have this question of Bogardus, it hasn't been overruled, has it?

Mr. Wayne G. Barnett: And we do not ask the Court to overrule Bogardus.

We -- we do ask the Court to explain Bogardus and we think Bogardus really involves a -- application of what we -- we call just -- it purports a clarity, a motivation test.

It used intention in the sense of why the payment was made.

Justice William O. Douglas: Well, I notice that both the majority and the minority in Bogardus used the question of the test of intent.

So that must -- that both opinions must displease you.

Mr. Wayne G. Barnett: Pardon and well, they -- they both displease me in using the -- the language of intent.

We think they both agree with our position.

I -- I may suggest that the rationalization of the Bogardus case has to start with Judge Hand's opinion in the Court of Appeals.

And if you read the Supreme Court opinions as responsive to the issues stated by Judge Hand, I -- I think it -- it then becomes clear what -- what it is that the Court is talking about.

Of the -- the dissenting opinion, for example, speaks of -- whether it is made with the intention to show goodwill, affection or esteem.

Now, it certainly has to make any difference whether you intent to show this or when you -- when you intend that somebody will believe that you have these feelings.

These feelings are relevant only if it was out of that that you made the payment.

To remove by it, so the distinction really is between an act of will and causation.

And intent I -- we think it only mean -- it's properly used an act of will.

Justice Hugo L. Black: Have you written out in your brief the exact language that you would have as to use, if you could, to -- to put the standard or court for instance, to charge a jury.

Mr. Wayne G. Barnett: I -- I think, it is there.

I'm -- I'm not sure that we -- we have stated it in a black letter term.

What we used the phrase, a -- a gift is a payment motivated by personal, rather than business reasons.

Justice Hugo L. Black: That's you're --

Mr. Wayne G. Barnett: That requires a lot of explanation.

I -- I don't think you can accept that is a self-sustaining statement.

Justice Felix Frankfurter: Does the word “gift” -- isn't the word “gift” on the latter's argument -- four letters (Voice Overlap) --

Mr. Wayne G. Barnett: Yes, sir.

Justice Felix Frankfurter: Isn't that four-lettered word -- that dubious four-lettered word, dubious in a certain sense, really the -- the summary of a profit by which a judgment is reached, rather than the litmus paper by which we can deal any judge, at least the judge can determine what he's suppose to find.

Mr. Wayne G. Barnett: Yes, sir.

Yes, sir.

No, no.

We --

Justice Hugo L. Black: What would be charged -- what would charged on jury then, I charge you that the law is -- is (Inaudible) often find that it was a gift.

It's not -- tried it was not?

Mr. Wayne G. Barnett: In -- in this case -- in this case, if I -- if I gave this case to the jury.

Now, I -- I would ask the jury whether the payment was a result of a sense that something Moore was doing -- was due -- Mr. Stanton, on occasion of his departure, whether there were some sense that he had not been fully rewarded, whether there is a -- a sense of uneasiness that's causing him to make the payment.

Now, in fact --

Justice Hugo L. Black: Does it get to a state to mind in that ground?

Mr. Wayne G. Barnett: Well, I -- I think you cannot avoid the state of mind to provide the connection between a service and the payment.

The -- the actor is a person and -- and you can't make the connection without going through him.

Justice Hugo L. Black: You look only to the state of mind that the person who's -- who --

Mr. Wayne G. Barnett: Making the (Voice Overlap) --

Justice Hugo L. Black: -- transfer for this (Voice Overlap) --

Mr. Wayne G. Barnett: Yes.

Justice Hugo L. Black: I won't say give --

Mr. Wayne G. Barnett: Yes.

Justice Hugo L. Black: -- but would you transfer something that --

Mr. Wayne G. Barnett: Yes.

Yes, that's right.

Justice William O. Douglas: Well --

Justice John M. Harlan: (Voice Overlap) --

Justice William O. Douglas: -- I'm sure the Government didn't find the charge in the first case that was argued yesterday, error, as I have recalled.

Mr. Wayne G. Barnett: What -- what -- we -- do not--

Justice Hugo L. Black: With your advantage.

Mr. Wayne G. Barnett: But -- on the charges you give, that was the -- that was a charge that the Government did not accept, is that (Voice Overlap) --

Mr. Wayne G. Barnett: Well, I -- I do not believe they accepted to it in the District Court and -- and if we are bound by that, then that case should be dismissed, but as to the substance of the charge, I would not object most strenuously because I -- it -- it charges that all in the legal conclusions, it does not really tell anybody what it is there to look for.

Chief Justice Earl Warren: Well, Mr. Barnett, if you're going to put up on the question of whether or not, there's something still do, about the case you've just preceded this one.

I thought Mr. Elman -- I thought Mr. Elman says that -- that in that case there -- there wasn't anything due.

Mr. -- what is his name, the plaintiff?

Mr. Wayne G. Barnett: Yes.

Oh --

Chief Justice Earl Warren: And have he -- have he asked anything, he was an entitled to get --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- to get anything, but he gave it to him.

Now, why would you -- what to do, would be there.

Mr. Wayne G. Barnett: This is a -- a problem of avoiding a -- a restrictive meaning of -- of words like, “do an obligation.”

Judge Hand in Bogardus, used the phrase, “whether once moved by some scruple,” some -- some sense of an easiness that that he hasn't fully responded as he should, unless he makes the payment that it satisfies that sense.

Now, that -- that is the most subtle problem, which will very sought and be a rate -- be raised.

Letter -- that common really arises first of all, only in a case of -- of payments by individuals.

We think that problem so -- selling the (Inaudible) in -- in -- by a corporation.

And the standard that we draw in that case is exactly the same standard of connection to the business that is necessary to justify a business expense.

Now, we have a body of law of what the business relationship has to be, to justify a business expense.

What we're really saying in the end (Inaudible) would like to get there is that you apply -- since the same standard of business relationship, where the gift purpose has to do for the business expense purpose.

Now, I think that there is a very solemn area since no one ever looked at the statute.

I -- I think actually, there's a great deal to be learned from the statute here, when -- I think it -- it's perhaps the strongest support for our definition of gifts as excluding those nature for business reasons.

First of all, the assimilation of gifts to devices, inheritances and -- and bequest.

Now the -- a bequest is an essentially personal matter.

I -- these are interest family transfers by enlarge and you can be understandably -- they involved personal kinds of motivation.

And we think that including gifts in exclusion, Congress had in mind the same kind of transfer in a -- in revivals transfers.

Justice William J. Brennan: Corporate payment ever qualify under you test, as a none practicable gift?

Mr. Wayne G. Barnett: Yes.

Let me clear out this business about corporations.

The -- in the relevance of corporation, powers and capacity, goes only to result in the factual question.

We do not have assert a -- if rule of the federal law of the corporation can't make a gift or anything of the sort.

We say that when a corporation has made a payment.

You can answer the question, why did they make the payment, by asking of what basis was the use of corporate assets justified.

Now, on this case, for example, we -- we ask the legal question on what basis was the use of a church -- the church's assets to make a payment to Mr. Stanton justify.

Now, the only conceivable basis on which that would be justified is as a recondition that something more is due Mr. Stanton.

Justice Charles E. Whittaker: You mean justified as a legal expenditure?

Mr. Wayne G. Barnett: Yes.

Yes, as a matter of corporation law.

Justice Charles E. Whittaker: Is that another of concern to the Commissioner?

Mr. Wayne G. Barnett: Well, we used them only as an evident -- evidentiary presumption, that we presumed that the vestrymen did not committed the breach of trust.

And that therefore, unless someone is going to come forth and contend that they did, you have to accept as the reason for the payment that reason which -- which made it a proper expenditure and that that really fill the used the -- the corporate powers.

Justice Hugo L. Black: That would be a pretty strong presumption if you're using it in this case, I should think that --

Mr. Wayne G. Barnett: I would --

Justice Hugo L. Black: -- I would think it be pretty bad to -- through there's a breach of trust for a church, which is like services of somebody for a long time.

Mr. Wayne G. Barnett: Yes.

Yes sir.

Justice Hugo L. Black: To give him some money after they severed their relationship, I -- I would think it could tell a hard time drawing the presumption that there is breach of trust to something invidious or something.

Mr. Wayne G. Barnett: That's right and that's true -- that's true in all of the cases.

And so -- so the presumption that was proper is virtually controlling in all the cases.

Now, Mr. Stanton isn't contending that anyone committed breach of trust.

And we aren't continually committed breach of trust.

Therefore, the -- there's no issue here.

The presumption that it was proper payment controls.

And the only that it could be a proper payment is that in no more than reasonable compensation.

Justice Hugo L. Black: But it could -- we couldn't draw a rule, could we that -- I do not know what should be done --

I'm just asking questions.

Mr. Wayne G. Barnett: Well I -- I must resume I --

Justice Hugo L. Black: We couldn't -- we couldn't provide the rules that merely said that every time a person -- seven years relationship with an employer and the employer later chose to transfer some money to him if that was compensation.

Mr. Wayne G. Barnett: No, sir.

No, sir.

There is always a question of fact.

Justice Hugo L. Black: Well, now on that --

Mr. Wayne G. Barnett: If -- if the payor, in your case, were a corporation and it were true as a matter of state law which is undoubtedly would be, that he could have made the payment, unless it were justified by the past services.

Unless it was --

Justice Hugo L. Black: So far as the public is concerned, he could, I suppose, unless somebody connected with the corporation is after him.

Mr. Wayne G. Barnett: (Voice Overlap) --

Justice Hugo L. Black: Approved and that might be difficult.

Mr. Wayne G. Barnett: Yes, yes.

Well, we -- we get to a problem -- for example, take -- take the case of the -- a payment that is unanimously approved by the stockholders.

Now, we don't think a majority approval makes any difference, because the majority stockholders had the same duty to use the corporate assets only for business purposes as the directors do.

But if it's unanimously approved by the stockholders, that may bar our use of the presumption, because the -- the stockholders, unless creditors were prejudiced, could use the -- the assets or whatever they wanted to.

But then a federal rule comes into play of income attribution.

Now, if the stockholders, say a family corporation, did use the business assets to make a gift to a widow, of -- of the president of corporation.

This is fairly completive most to the weight of bonus cases.

Now, if that -- if there was a business justification for the use of the corporate assets, let us say that -- that -- because of the past services performed, the corporation felt a -- a sense of obligation to make some provision for the widow.

Then, of course, it would be income (Inaudible) they would to the widow.

It would not be a gift to her.

If on the other hand, of the sought to be shown, that wasn't quite a major payment at all.

The reason they made the payment is the stockholders happen to like the widow or felt personal sympathy for the widow.

It would follow then that -- that -- of course, it was -- it was a gift to the widow.

But by the same token, it was a distribution by the corporation to the stockholders, the dividend of the stockholders.

They've used corporate funds to satisfy their personal purposes.

Now, that's why I say that -- that if we can define a gift in terms exclusive of business reasons -- actually, we were very seldom be a litigated case, because the recipient is not going to claim.

Justice Hugo L. Black: Congress can do that very easily, could they?

Mr. Wayne G. Barnett: Well -- did I say --

Justice John M. Harlan: Not only with the very --

Justice Hugo L. Black: I'm not -- I'm not saying --

Mr. Wayne G. Barnett: No, sir.

Justice Felix Frankfurter: (Voice Overlap) after saying that --

Mr. Wayne G. Barnett: No, no.

Justice Felix Frankfurter: -- that kind of a problem, would that fear you have to be met.

Mr. Wayne G. Barnett: Well, I'm not sure that I could direct the statute that -- that would cover these things.

Problems of this sort, I think, are -- are sometimes easier to handle.

Justice Hugo L. Black: I think you could there, made pretty closely.

Mr. Wayne G. Barnett: Well, pretty closely, pretty closely, but let me --

Justice Hugo L. Black: All relationship, past of present business.

The relationship between the parties had never, in the past, are in the best of time, have been a business relationship.

Mr. Wayne G. Barnett: Well --

Justice Hugo L. Black: That's what you say --

Mr. Wayne G. Barnett: No.

No, I don t wanna say that, if I -- if I've said that I want to --

Justice Charles E. Whittaker: Mr. Barnett, does your -- oh, excuse me, excuse me -- do you -- pardon.

Mr. Wayne G. Barnett: In the case of a -- individual who makes a payment to someone who has previously performed services for him.

We give you the example on our brief of -- but first we get the extreme examples, someone rescues her child and you were moved to make a lavish reward.

Now, for safety that's -- that's our gratitude for services, but it is more than that.

Your response involves a -- a -- emotional response.

Now, a -- a more borderline case, we put in our Beacon and -- and Stanton.

Where a sole proprietor has made his fortune and his business, then sold the business to retired and now he's got millions of dollars and doesn't know what to do with them and he doesn't want his aunt to get it when he dies.

And he's moved out of the -- just a sense of goodwill to make a generous distribution to all of his old employees.

Now we don't say that can't be a gift, we say if the -- whether it is or not, deters upon the question it backed, whether he was moved by any of sense of that something more in equity and fairness was due the employees.

Now, I don't mean to -- I -- I don't mean to -- to state a test of -- of legal obligation, a moral obligation, but something that makes it as -- as Learned Hand said, “Something less than an unconstrained act of generosity.”

Or it is the sense of -- of composure, if I may -- that is owing and that --

Justice Charles E. Whittaker: Does not the Bogardus rule take account of that theory?

Mr. Wayne G. Barnett: Yes.

Well, that -- that is our explanation of Bogardus.

That -- that Bogardus actually adopts the same line that Learned Hand tried to spell out so carefully.

Now, the opinion there talks about the stockholders removed -- the hypothetical I gave you is this really the Bogardus case, except that we have the complications of corporations, but the payment there was treated by the Court as having been made by the former stockholders themselves, not by -- this new corporation.

And so they were in the same positions as my sole proprietor, who has retired from the business.

And if you read the Supreme Court opinions in the light of the -- of the issue stated by Judge Hand, of whether it's unrestrained generosity or a sense of -- of something more being due.

Justice Charles E. Whittaker: As I understood you though, you would require a jury or the fact-finder, if not a jury to negate any feeling or condition of the payment being for something not previously done that should have been done.

Mr. Wayne G. Barnett: Well, not -- not sure.

Justice Charles E. Whittaker: Ought.

Mr. Wayne G. Barnett: Yes, yes.

All you think does is right.

Justice Charles E. Whittaker: Now then, does not if the requirement at the jury find that the transfer was made solely out of a dominative pertinence and intent, without consideration, negate any such feeling that something was due?

Mr. Wayne G. Barnett: Well that -- that is true -- if you very carefully define donative intent to mean that.

The most course don't mean that, when they say donative intent.

What they mean is that I didn't have a legal obligation and I intended that he should have the money.

And that's donative intent.

Now -- and that's not what I mean by it.

I mean, I don't think it's what you mean by it.

And -- what we would like to do is avoid to use of words like intent and like consideration that -- that aren't -- don't, themselves, convey any specific meaning you have to -- have to spell out exactly what mean before they -- they're useful.

Justice Charles E. Whittaker: What words, for example, could you use?

Mr. Wayne G. Barnett: Well we -- we've even tried similar to avoid saying motive and rather say the reasons why the payment is made.

Justice Felix Frankfurter: Mr. Bogardus (Inaudible) [Laughter]

Mr. Wayne G. Barnett: I hope I can better -- no he -- he won.

Justice Felix Frankfurter: Mr. Barnett, I want to ask you a few questions about Bogardus?

Mr. Wayne G. Barnett: Yes, sir.

Justice Felix Frankfurter: On the assumption that Bogardus had been the mischief maker in this whole scene.

Mr. Wayne G. Barnett: Oh, I -- I would like to correct that.

It was the same way before Bogardus --

Justice Felix Frankfurter: But then --

Justice Felix Frankfurter: there was no Bogardus decision--

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- lower courts couldn't refer to some kind of a Supreme Court opinion.

Justice Felix Frankfurter: I've followed the advice of Mr. -- or the suggestion of Mr. Elman tendered and if one read Judge Hand's opinion below, which I have done and not only where in his opinion, but I read Judge Swan's dissenting opinion in that case.

And I agree with -- I don't know that heart of the number of times, the opinions in this Court.

The Bogardus opinion in this Court is a -- is pie with many plums --

Mr. Wayne G. Barnett: Yes, sir.

Justice Felix Frankfurter: -- in it.

What I get out of the opinions of the lower court, the need of this Court.

It is the different plum that picks by different people in different cases, for different purpose.

And I should -- I now understand why the Government doesn't ask as to overrule Bogardus, if you were to ask me to do that, I wouldn't know what I was overruling, except one thing --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- namely --

Mr. Wayne G. Barnett: Yes, sir.

Justice Felix Frankfurter: -- namely, that in view of the fining of the Commissioner as sustained by the Board of Tax Appeal, the court, the District Court, none of the courts should have overruled those joint findings.

And, I think, the numbers of case, I said what I think about it.

For me, I think your chasing the wrong hare in all its business.

Because Mr. Justice Sutherland, as tow whom I have great respect, had affection as a man.

In this case and so of with his opinions, talked to much.

Indeed, I think, almost all the judges in this field talk too much.

Because he didn't restrict himself to moral and legal duty, except something else which is very pertinent.

All of the incentive and -- of anticipated benefit of any kind beyond the satisfactory close from the performance of a generous act.

I ask you, could you let lose a more confusing and diverting set of words than those?

How can any judge or any jury, any court, at least, if the jury has found it, decide whether or not, something that was given, was given as an incentive of anticipated benefit of any kind beyond the satisfaction.

Parents give gifts to children or friend give gifts to friends and who is to pursue the complexity of motive that entered.

Now, then, I think the Bogardus case really -- the lower court is a clash between the view of Judge Hand, who said that the determinations of fact and practically final from him.

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: And Judge Swan said, since the facts were stipulated, I can pass on them, as well as --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- the lower people.

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: And therefore, it got down to the question which as I understand it, Justice Douglas largely stood, namely, I can -- seeking the square to circle by asking or trying to give any better word that will do the trick.

It will be a litmus state and avoid the kind of conflicting decisions on the same accepted fact.

Mr. Wayne G. Barnett: Let -- we would agree with -- with Judge Hand in Bogardus, that was there are question of fact, but only after he said what the question fact was?

Justice Felix Frankfurter: Oh, he -- that was a question and he said it.

Yes, he did say that the question of fact --

Mr. Wayne G. Barnett: And he --

Justice Felix Frankfurter: -- and he was bound by then.

Mr. Wayne G. Barnett: Yes, but he said what the question fact was.

Justice Felix Frankfurter: Well, but he didn't disagree much with -- with Judge Swan and looked and looked --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: What was -- look what the question of fact was, I don't know with all my sympathy with the dissent in Bogardus, whether a part from the fact that I would be bound by the two law of fact finding tribunal, you could find differently when it was stipulated, it was stipulated.

Think of lawyers stipulating this kind of thing.

It was stipulated that the disbursements were not made or intended to be made for any services rendered or to be rendered, or for any consideration given or to be given etcetera, etcetera.

Think of a stipulation like that, no wonder you got the kind mess the Bogardus case --

Mr. Wayne G. Barnett: Well --

Justice Felix Frankfurter: -- is and has generated.

Mr. Wayne G. Barnett: That --

Justice Felix Frankfurter: I mean -- that's what I think about the Bogardus case and I --

Mr. Wayne G. Barnett: Well --

Justice Felix Frankfurter: -- now I understand whether you know that is to overrule them.

That's that we don't know what to overrule out of that (Voice Overlap) --

Mr. Wayne G. Barnett: Yes.

As Mr. Duberstein's counsel yesterday pointed out and waivered somewhat and how to approach Bogardus and we ended up trying to rationalize it.

And I -- that I think greatly, Your Honor.Actually I -- the rationalization I found in Judge Hand's opinion.

But actually -- that's why we think it -- we need a standard that is of easy application.

Justice Felix Frankfurter: Well, now, you've formed your own words and I can assure you I make a profit on this, that upon those words that will be dealt, the losses by lower court and by this Court that in 10 years from now, we'll get to just where Bogardus had come.

Mr. Wayne G. Barnett: Well, let me say that in 20 cases, in 20 cases, I purport to refer to the presumption that a corporation cannot make a gift to its officers and employees.

And in every case, every case -- now, was that presumption has been inferred to, it was held not to be a gift.

And one case said nothing more than that.

That's -- that is an answer to almost all of these cases, it's the answer to this case.

In this case, the plaintiff was not a gift, because the vestryman could not give away the church's assets, unless it was reasonable compensation for their services.

Justice Felix Frankfurter: That's why I suggest you -- what we can do is to do a lot of negatives, say a lot of things cannot --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- give a test --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- and certainly not the exclusive test.

Mr. Wayne G. Barnett: Well --

Justice Felix Frankfurter: But I think you'll search for an affirmative guiding characterization --

Mr. Wayne G. Barnett: Let -- let --

Justice Felix Frankfurter: -- not the judges and commissioners and anybody else including ourselves was stray is, I suggest --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- squaring the circle.

Mr. Wayne G. Barnett: Let me say they're not -- everything that we have argued here, we -- we expect the Court to be able to accomplish in one opinion.

We have felt that our duty to try to make a framework at least and which to think about the problem.

And I really --

Justice Felix Frankfurter: We're not here to think --

Mr. Wayne G. Barnett: -- if you can't --

Justice Felix Frankfurter: -- we're here to decide.

Mr. Wayne G. Barnett: Well, I -- I hope the one conceives the other.

Chief Justice Earl Warren: Mr. Barnett [Laughter] --

Justice Felix Frankfurter: I think the less we talk, the better.

It's my view.

Chief Justice Earl Warren: Mr. Barnett, I notice the findings of fact and conclusions of law here are only two sentences.

And they just -- if the judges finds the ultimate fact that this was a -- a gratuity and therefore, need not have been reported as income, did you propose any findings below that would -- that would set this thing up in some form, so that an appellate court could have something to pass on?

Mr. Wayne G. Barnett: No, sir.

Chief Justice Earl Warren: Why no?

Mr. Wayne G. Barnett: So far as I encounter the record, we made no request for more specific findings nor did the other side.

Chief Justice Earl Warren: Well, they -- there are no reason for them to do it because it was --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- it was absolutely --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- what they were asking for --

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: -- but why --

Mr. Wayne G. Barnett: But --

Chief Justice Earl Warren: -- why would you try to prepare a record for us from --

Mr. Wayne G. Barnett: Well, no -- no one know at the time that this case was going to be taken to the Supreme Court.

I've learn this to know there -- I know a case which we have thousands and it was not that careful (Voice Overlap) --

Chief Justice Earl Warren: And why it'd been in here for this and then proper shape?

Mr. Wayne G. Barnett: Well, I -- I think that if there is a question of fact in this case which they would be, we say, if it were contended that this payment was made because the vestryman like Mr. Stanton not -- not because he had performed services for the corporation, that they likely there would be a question of fact namely, whether they reach their trust by using the church's assets for their personal purposes.

If that is --

Chief Justice Earl Warren: You mean -- you mean then that there was no question of fact here for the trial court to decide?

Mr. Wayne G. Barnett: Not unless it is contended that the directors and vestryman made the payment because of their personal affection for Mr. Stanton.

I don't think they make that contention.

Chief Justice Earl Warren: But did you make the -- did you make the contention in the trial court that this was beyond the -- the province of the Board of Directors to -- to give such a --

Mr. Wayne G. Barnett: No, sir.

No, sir.

Chief Justice Earl Warren: Well, then, how did you get -- do you -- did you -- do you challenge -- do you challenge the findings of the trial court?

Mr. Wayne G. Barnett: Yes.

Chief Justice Earl Warren: On what grounds?

Mr. Wayne G. Barnett: That -- in the Court of Appeals, we did argue this business about possible (Voice Overlap) --

Chief Justice Earl Warren: Where is -- what is -- what -- on what grounds do you know or at anytime challenge the findings of the Court of Appeals or the District Court?

Mr. Wayne G. Barnett: Well -- I -- I can say -- I can state the challenge as one of insufficient evidence, but what I'm really saying is that if you apply the right test, the right definition of a gift, there is no evidence to support an inclusion that these directors violated their trust, their duties to the church by giving away the assets for their personal reasons.

And that was that the only claim that would raise the question of fact.

There's no evidence of that.

And therefore, the -- the finding of fact is not supported by the evidence, but since it's just the problem of definition other than one of evidence.

Justice Charles E. Whittaker: Do you conceive that (Inaudible) that the Government said the corporation did intend to make a gift from Mr. Stanton?

Mr. Wayne G. Barnett: Oh, we had -- we have tried to say that intent is an act of will and we agreed that they intended with all their might that this be a gift that it be not taxable to Mr. Stanton.

They wanted it not to be taxable.

I dare say they were advised by counsel that that depended upon whether they intended as a gift and therefore, they did intend it as a gift.

We -- we concede that.

We -- we think certainly, the result does not depend upon that kind of -- of act or will.

Thank you very much.

Chief Justice Earl Warren: Mr Lee.

Rebuttal of Clendon H. Lee

Mr. Clendon H. Lee: Mr. Chief Justice, may it please the Court.

I think in what Mr. Barnett has just stated that he has put ourselves right back in the Dartmouth College case and in the -- and in the Erie Railroad against Tompkins, because he says that it is only, if they breached their trust that this can be a gift, that the corporation is inherently incapable of making a gift.

Our Federal Rule 8 provides that affirmative defenses shall be pleaded.

There was no affirmative defense below.

This is a complete afterthought.

It was an afterthought after the filling to Duberstein brief.

They knew that they couldn't -- couldn't support the -- they -- they couldn't upset the fact findings of the trial court and they perfectly, logically and the brief of the Government is, I think, thoroughly consistent in this regard.

It proceeds and says, we must throw away property and contract concepts.

We must look at the corporation, we must dehumanize it.

It's the non-anthropomorphic view of corporations.

That's what it is.

We dehumanize it.

And by the same token, a corporation cannot commit a crime including tax fraud, we strip it of all intent, all will, all emotional coloration and we say that that has been the law since the beginning of the republic.

A corporation is inherently incapable -- incapable of making a gift.

Now, I am a little bit perplexed about the reference to deductibility of business expenses.

I can appreciate the Commissioner's desire and the Solicitor General's desire to introduce symmetry into the statute, but that is purely a -- a congressional function.

The Internal Revenue Code is the baroque masterpiece of Congress.

And it can't be redone by the pseudo-classical canons of criticism of the Commissioner or the Solicitor General.

Chief Justice Earl Warren: Very well.