UNITED STATES v. KAISER

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Argument of Wayne G. Barnett

Chief Justice Earl Warren: Number 55, United States, Petitioner, versus Allen Kaiser.

Mr. Barnett, you may proceed.

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

This case and two that follow it, the Duberstein case and the Stanton case are income tax cases all involving the exclusion from income, a property acquired by gift.

The facts of the three cases are very different.

This case involves strike benefits, Duberstein, a Cadillac given as -- in return for business favor and Stanton, a $20,000 gratuity given by a corporation to a resigning officer.

We believe, however, that ultimately the cases turn on a common problem of defining what a gift is.

In Stanton and Duberstein, the problem is almost solely that i.e the problem of definition.

And once that question is resolved, the results there follow almost automatically.

In this case, however, there are additional problems, the problem of applying the definition to the facts once the definition is arrived at and also an entirely independent problem of whether strike benefits are income from the definition of income even if they're not gifts.

For that reason, I will, in this case, try to focus on the problems that are peculiar to this case and leave to my colleague, Mr. Edelman the development of the basic definition of gifts.

The facts in this case are relatively simple.

In April of 1954, the United Automobile Workers and their Local 833 representing the employees of the Kohler Company, in Kohler, Wisconsin called a strike of those employees in support of a contract demand.

Shortly after the strike began, the international established a strike aid program under which the strikers were given financial assistance in the form of food vouchers redeemable at the local stores and the direct payment of rent and utility.

The conditions upon which strike benefits were given were two - First of all, of course, the applicant had to be a striker, though it did not matter whether he was a member of the union as long as he was a striker.

The second was that he established his need that he had no other sources of income and he is not otherwise employed and so forth.

By November 1957, the day of the trial, the international expended over $ 9 million in strike aid to the Kohler employees.

The money, so far as relevant here came from the regular strike fund of the International.

That fund had been created by a provision of the Constitution requiring 25 cents of the regular monthly dues of every member to be set aside in a special fund to be used exclusively for the purpose of aiding local unions engaged in authorized strikes; that is strikes that the International Executive Board had approved.

This case is essentially a test case to establish whether or not those benefits are taxable.

The respondent here did participate in the strike.

He was not member of the union at the time the strike began, nor when he first began seeking strike benefits.

He later in the year in August, he did join the union, though he was not required to pay initiation fees or dues because he was on strike.

The benefits that he received amounted to $16.50 a week.

This was the rate established for single men, he had no dependents and over the balance of the year, he received a total of $565 in strike benefits.

Chief Justice Earl Warren: Was this after he became a member?

Mr. Wayne G. Barnett: No, that isn't at all.

He started receiving the benefits in May and joined the union in August, I think it is, and it would be a pro rata part of the total.

Chief Justice Earl Warren: Do you make any distinction between the real tax payments?

Mr. Wayne G. Barnett: We do not sir.

Chief Justice Earl Warren: Do you think that he's liable under either test.

Mr. Wayne G. Barnett: Yes.

Yes sir.

Chief Justice Earl Warren: And all the members of the union would be liable in the same way if he is?

Mr. Wayne G. Barnett: Yes, that was right sir.

Justice Charles E. Whittaker: (Inaudible)

Mr. Wayne G. Barnett: No we do not.

Justice Charles E. Whittaker: (Inaudible)

Mr. Wayne G. Barnett: The striker, yes.

Chief Justice Earl Warren: Yes.

Mr. Wayne G. Barnett: Sorry.

The Commissioner, who has ruled that strike benefits are incomes since 1920, included that $565 in respondent's reported income increasing the total reported income to $3235 and that produced a deficiency of $108 in tax.

The deficiency was paid and suit for refund was brought.

The District Court, although believing that there was no question of the fact for the jury, nevertheless, in order to provide a complete record, submitted to the jury the question whether the payments were a gift.

The jury said that they were.

The District Court set aside the jury's verdict entered judgment for the Government holding as a matter of law that those benefits were income.

The Court of Appeals for the Seventh Circuit reversed, holding both that the strike benefits were gifts within the exclusion of Section 102 (a) of the 1954 Code and alternatively that even if they were not gifts they were not within the concept of income as defined in Section 61 (a).

Now the basis for both holdings of ours can be told from the opinion.

It is essentially the same, namely, that since the strike benefits were payable only upon showing them need, their payment was as the Court said consistent only with charity and that decision is here for rehearing.

I will deal first with the question of whether the strike benefits were gifts and later with the question of their income.

As we developed more fully in the other two cases, a payment for which there is no obligation and no bargain for exchange is not necessarily a gift for tax purposes, and the problem is how to decide when it is and when it isn't and as we would later develop, it depends upon the reasons why the payment is made.

If it is made for essentially personal reason, charity, affection, just an interested generosity, it is a gift.

If on the other hand is made for business reasons, it is not a gift.

So the controlling question of fact in this case as in the others is, why were the payments made?

Now the Court of Appeals in saying they were made out of charity, based that solely on the single fact that need was one of the conditions.

It said nothing about the other condition that you'd be on strike and did not identify who it is who is moved by charity and one of the things you have to identify, to pay or to find out why he's made the payment.

Justice Charles E. Whittaker: The State defined that the recipient had the limited (Inaudible)

Mr. Wayne G. Barnett: It is not sir.

It is not.

That we think is the basic difference between the income problem and the gift problem, the except -- exclusive for gifts has something to do with the quality of the payor's act and it is to that that you have to look to make the distinction.

Now certainly it was not the union officers executing the program who made the charitable gift.

It was the union's funds, not their fund that were given away and in each of personal charitable impulses they personally may have had would be quite irrelevant.

In fact the benefits were paid simply in execution of an express provision of the Union Constitution providing for and out of the funds established by that Constitution.

But it seems to us evidently that you have to look to the Constitution to find out why they were made.

The Court of Appeals doesn't mention the provisions of the Constitution and the respondent just barely passes over them.

Chief Justice Earl Warren: How is the fund made up?

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

Chief Justice Earl Warren: How is the fund made up?

Mr. Wayne G. Barnett: By taking 25 cents out of the monthly dues of every member of the International.

That is the crucial provision of the Constitution that's in our view at page 4 of our brief, Article 16, Section 11 which provides for the fund, and provides that 25 cents out of the monthly dues of every member shall be set aside as the International Union Strike Fund.

Justice Hugo L. Black: What do you claim its (Inaudible)

Mr. Wayne G. Barnett: We claim first that there is a -- it is a mutual protection arrangement, mutuality in that -- by this provision, all the members' contribute to the fund and each receives benefits should the occasion arise.

It is essentially a mutual insurance.

Justice Hugo L. Black: Do you claim its compensation?

Mr. Wayne G. Barnett: We claim that whether its compensation is really a characterization of legal result and for purposes of the -- putting it under pigeon hole in Section 61 (a) we would say it is compensation.

I don't think that would --

Justice Hugo L. Black: Because it comes out of what they've earned?

Mr. Wayne G. Barnett: Indirectly, it does.

I would come to that.

Since the dues paid into the fund by the union members --

Justice Hugo L. Black: Out of the union member or the company, both or one of those?

Mr. Wayne G. Barnett: No, just the union members, not the company.

This is solely the dues paid by the union members to the union.

Part of that goes into strike fund and -- so, the source of the money is -- is the union dues.

Justice William J. Brennan: Well, it -- the recipient getting back something he already did?

Mr. Wayne G. Barnett: No, not necessarily.

This will be true if you have it -- completely unchanging membership and they've all paid in the dues then you -- the strike is all paid out again who would go back to the same people.

But we can't trace these dollars, sue them by that way.

I think the problem is to characterize the nature of the funds, what purpose it serves and I think the fact that the Union dues are deductible to the members when it's paid into the fund, and they're deductible only for the reason that the fund is used to further their trade or business i.e their employment and that is why --

Justice Hugo L. Black: Well they've been -- they've been paid for their employment, haven't they?

Mr. Wayne G. Barnett: The -- they haven't paid for their employment.

Justice Hugo L. Black: I think one has to go in his income, an income tax return.

Mr. Wayne G. Barnett: No, because part of that they were paid, they're paid over as union dues and deducted.

Justice Hugo L. Black: That's deducted.

Mr. Wayne G. Barnett: Yes, yes.

Justice Hugo L. Black: So, the other part they've paid I presumed had an income -- had they paid on income taxes.

Mr. Wayne G. Barnett: Yes, that's right, sir.

Chief Justice Earl Warren: And Congress has exempted the part that they didn't have to pay from what I gather.

Mr. Wayne G. Barnett: You mean the allowance or the deduction?

Chief Justice Earl Warren: Yes.

Mr. Wayne G. Barnett: That's under the general trade or business allowance by deduction of the Commissioner's rule that it is a legitimate trade or business expense.

Now, the Union Constitution says that this fund made up of union dues is to be drawn up on exclusively for the purpose of aiding local unions engaged in authorized strikes and strikes must be authorized by the International Executive Board and the strike benefits terminate if the protective board orders termination of the strike.

Now to say, the most important aspect of this is mutuality.

The members as a whole are not giving anything to anyone else.

They're pooling their resources in the fund for their mutual protection, and each ultimately has the same prospect of being the recipient of the fund should the occasion arise.

Justice Charles E. Whittaker: (Inaudible)

Mr. Wayne G. Barnett: Yes, sir.

That is one aspect.

To the extent that the object of the fund is solely to relieve hardship is in itself not to promote the strike or anything else, just the relief of hardship aspect, we say it is still not charity because it is essentially a mutual insurance fund.

Justice Hugo L. Black: Well, if it is insurance, you couldn't tax it (inaudible)

Mr. Wayne G. Barnett: Yes, sir.

Yes sir.

Justice Hugo L. Black: You could?

Mr. Wayne G. Barnett: Only life insurance and insurance proceeds for personal injuries are excluded by the code and it's been a consistent position of the service that any other insurance arrangement results in a taxable gain.

Justice Hugo L. Black: I think we had a case on that years ago, didn't we?

Mr. Wayne G. Barnett: I --

Justice Hugo L. Black: Maybe that was for injuries from some railroads.

Mr. Wayne G. Barnett: There was a --

Justice Hugo L. Black: I followed the case very well.

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

I --

Justice Hugo L. Black: The railroad had an insurance fund a long time.

The Government on the taxes said it wasn't insurance for that purpose.

What was the name -- had you seen that case?

Mr. Wayne G. Barnett: I don't think I know that case, sir.

Justice Hugo L. Black: All right.

Justice Charles E. Whittaker: (Inaudible)

Mr. Wayne G. Barnett: Those are -- no.

Those are specifically excluded by the code and it is part of our argument here is it that this is the kind of judgment that Congress often made and Congress has made it in a number of areas.

And it should make it here if judgment is to be made.

Now, as I say, even if this was solely to relieve hardship in and of itself, it would not be charity but mutual insurance protection.

But you can't -- there is not a full explanation of the provisions of the Constitution.

It was only to relieve hardship.

There's no reason to limit it to strikers, and if it's limited to strikers, limited to strikers in authorized strikes.

So the fund necessarily has something to do with the conduct of strikes.

Members who are unemployed for other reasons do not receive benefits.

It's only this came into strike.

Justice Potter Stewart: Are welfare payments taxable?

That these people on relief?

Mr. Wayne G. Barnett: No, sir.

They are not.

There is some ambiguity in the rulings that is because they are not income.

This goes back a long way in some and the time this was before the decision in Glenshaw Glass, when they move it they thought of it as not income.

I think they can be readily explained as being insured yes because they are made only out of a base just interested in public purpose.

Justice Potter Stewart: Are they covered by the statute?

Mr. Wayne G. Barnett: No, they're not, sir.

Justice Potter Stewart: By regulation of the problem?

Mr. Wayne G. Barnett: By rulings.

I don think --

Justice Potter Stewart: By rulings.

Mr. Wayne G. Barnett: There maybe a regulation.

I'm not certain of that.

Chief Justice Earl Warren: What has been the practice of the department in the collection of these taxes?

Have they -- have they through the years under this regulation of 1920 collected these from all the strikers?

Mr. Wayne G. Barnett: I'm informed by the -- the revenue service that the ruling position has been consistent.

Chief Justice Earl Warren: I beg your pardon.

Mr. Wayne G. Barnett: That the ruling decision position, their announced position has always been consistent that these are taxable, but this is the problem always encountered in dealing with -- with small returns.

The service can't audit all small returns.

They do only very selective basis.

And we are told that they have enforced this ruling to the same degree that they are able to police these returns at all and in that sense, they have been consistently enforced.

I don't think there's been any major drives in order to pick up a specific item.

Chief Justice Earl Warren: Have they sent anybody to get them on the years gone by?

Mr. Wayne G. Barnett: No.

Usually, as in this case, the -- they're only in full accounts.

The taxes involved in any individual taxpayers case as here is $108 and you don't have suits by and large over $108 and we are told that they have picked these items up upon order when they ran across them.

We don't have any records.

None of the records have broken down by these kinds of categories.

So we can't really say to what extent the instant occasions have actually arisen.

Justice William O. Douglas: I notice the instructions to the jury on page 42, are there any parts of that you take exception to?

Mr. Wayne G. Barnett: I -- probably, we do deal with that in our reply brief but that is filed only today.

We take exception to all of them in the sense that in our view they're just totally inconsistent.

Justice William O. Douglas: Was any exception taken at the trial?

Mr. Wayne G. Barnett: I believe --

Justice William O. Douglas: Other instructions asked?

Mr. Wayne G. Barnett: I believe not, sir, I believe not.

Our position then was and the District Court held that there wasn't a question of fact for the jury.

The reason we have not made a major argument about the instructions is just it's not being proper to argue the adequacy instructions until you will cite what the question of fact is that -- that you want to present it to the jury and it's our position that once you go through the definitional problem to try to find out what the question of fact is, there isn't a question of fact for the jury.

Justice William O. Douglas: Was that question raised at the trial or did the Government proceed only --

Mr. Wayne G. Barnett: We moved for directed verdict and as the District Court explained it in its later opinion, he did not grant the directed verdict, only ordered to have a complete record.

So he -- he went ahead and submitted the case to the jury and then granted our motion for judgment of standing the verdict.

Justice William O. Douglas: The reason that I'm asking about is that I notice it's your argument that -- that you are making points that the judge makes in his instructions to the jury and you're apparently appraising for (inaudible) the instruction on the Union Constitution.

He asked the jury to consider that and I -- did he not?

Mr. Wayne G. Barnett: I -- Yes, he did.

He did.

We don't think that's a question for the jury, the construction of the Union Constitution.

Justice William O. Douglas: Well that's the construction of the Union Constitution, but the fact that it was paid --

Mr. Wayne G. Barnett: But the --

Justice William O. Douglas: -- pursuant to provisions of the Union Constitution Board according to the district judge's instructions on whether or not, it wasn't delicately handled.

Mr. Wayne G. Barnett: Well, the difficulty with the instructions, it seems to me, is -- well I will give you one example of the kind of inconsistency.

Part of the instructions are based upon this Court's decision in American Dental, in which say that the fact that the motives leaving -- leading to the payment may have been grounded on business reasons or even selfishness, is not controlling.

He told that -- he told that to the jury.

Then he told the jury that they were gifts only it was so because of personal regard or pity or from general motives of (inaudible) or charity.

Now I do not reconcile those two instructions.

I don't believe the jury can reconcile that.

They are diametrically opposed concepts of what a gift is.

As I say, we developed at some length in the other cases a definition of the gift and it's called that is the main issue in those cases, and in this case we have a lot of other problems.

I am somewhat begging the question by just asserting here what we think is the controlling factual issue.

Justice William O. Douglas: Do you think that these questions are questions of law or questions of -- for a jury?

Mr. Wayne G. Barnett: They're always --

Justice William O. Douglas: In this case you say it shouldn't have gone to the jury at all.

Mr. Wayne G. Barnett: That is right.

The -- there is no explanation.

None has been offered by anyone consistent with our definition of what a gift is for the fact that the strike fund provisions of the Constitution limit the distributions to strikers.

Unless someone could offer an explanation of that provision which is consistent with the definition of a gift, I don't see how there can be an issue of fact.

You have to explain it and also as a matter of law, the fact of the mutuality of the insurance -- of the strike fund provisions.

The agreement that if you support our strike, we will support your strikes precludes as a matter of law, this being a gift.

The -- now, as I say, it is not a complete explanation --

Justice William O. Douglas: Well I say that the -- it was the intention of the union to pay for services.

Mr. Wayne G. Barnett: Well --

Justice William O. Douglas: -- these payments were income.

How can you resolve that question without submitting it to the jury?

Mr. Wayne G. Barnett: Well, we don't think that's the question.

We don't think the question --

Justice William O. Douglas: But isn't that one little piece of income?

Mr. Wayne G. Barnett: No -- it's not a great deal of elaboration, that the question is not one of the intentions.

It's not what you intend to do.

It is what moved you to do it.

Just to use terms that will make distinction we call it intent and motive as the distinction and the question is -- is the motivating force, not what you intended to be when you make the payment.

Now, this is -- runs through all the instructions here.

And as I say, in part, we were arguing these cases in the wrong order.

This case should have come last because we could develop these basic definitional problems first, but if you bear with me for the moment, and I feel that the question is why the payment is made.

What induced the person in making to make it and that that must be a personal charitable --

Justice William O. Douglas: I think that this judge covers that, doesn't he?

He says that these payments were made by the union because of any obligations, legal or moral, would make such payments and the visions of its constitution or under its organization and management then the payments were not gifts.

Mr. Wayne G. Barnett: Particularly --

Justice William O. Douglas: That's part of what you thought.

Mr. Wayne G. Barnett: Yes.

Yes, but he later says that it is not controlling that it was made out of business mode, these are -- are for selfish and business reasons.

Now we could by picking and choosing, pick out instructions that we could agree with but others that we don't agree with and which are diametrically opposed.

Justice Felix Frankfurter: Mr. Barnett, as I understood your answer to Justice Douglas' question as to whether this is the question of law of fact that these are the answered questions or is that coming at the end?

Mr. Wayne G. Barnett: Well --

Justice Felix Frankfurter: I guess --

Mr. Wayne G. Barnett: I think that question -- yes.

Justice Felix Frankfurter: In the light of the Government, list your --

Mr. Wayne G. Barnett: Yes.

Justice Felix Frankfurter: -- answer given unequivocal one (Inaudible)

Mr. Wayne G. Barnett: Well, if I may say -- excuse me.

That question must always come at the end.

Justice Felix Frankfurter: All right.

I mean -- I'm content.

Mr. Wayne G. Barnett: You need first to go through the problem to find out what it is that turns on and then decide whether that was the question of fact.

Here, we think it turns on nothing more than the fact that the Union Constitution limits the benefits to strikers.

There's no question of fact about that.

That's agreed.

Justice Hugo L. Black: You mean that's the standard of law that we can go by?

Mr. Wayne G. Barnett: No.

Justice Hugo L. Black: If any organization that gives somebody food, as I understand from the dissenting judge here, this was solely to get food, shelter or clothing?

Mr. Wayne G. Barnett: Yes.

Justice Hugo L. Black: Do you mean that any organization that gives food, shelter and clothing that the standard to determine whether it's a gift of not, (Inaudible)

Mr. Wayne G. Barnett: Well, yes.

But usually there's no question about it.

Justice Hugo L. Black: For some reason besides giving them the food and shelter and clothing?

Mr. Wayne G. Barnett: Well, you don't give food just to give food.

Something has induced you to do that.

You may do it -- you may do it because he worked for you for 41 years and he has now retired in of old age and he has no money.

Now, we say that that's why you gave it to me, its income.

Justice Hugo L. Black: You mean if somebody had worked for you a long time and you would have -- some years later give him something --

Mr. Wayne G. Barnett: No.

Justice Hugo L. Black: -- be income still (inaudible)

Mr. Wayne G. Barnett: Not necessarily some years later.

A case I'm thinking of is Peters v. Smith --

Justice Hugo L. Black: Yes, I remember.

Mr. Wayne G. Barnett: Yes, which is a department store, a corporation, retired people, when they became too old to physically carry out their duties and gave them pensions, pensions that were determined by need.

Now, we say that there's no difference between that and any other kind of pension arrangement and that is compensation for the past services.

That's why I say – if on the other hand I am giving you the food until -- only because my sense of charity, my duty to society or because you're my relative, then it's clearly a gift.

That's what I mean by the difference and the reasons why you make the payment.

Justice Hugo L. Black: Was there any contract to give this man funds?

Mr. Wayne G. Barnett: There's no contract to give this man anything, but there is a contract among the members of the union as a whole that they will all contribute 25 cents a month to a fund which will be used solely in -- solely in their strikes.

Justice Hugo L. Black: To do what?

As if the selling judge or what I'm getting at, is he right here in his statement of what this money was given to the judge, the judge who dissented on your (inaudible).

Mr. Wayne G. Barnett: Yes.

Justice Hugo L. Black: -- (Inaudible)

Mr. Wayne G. Barnett: I'm not quite sure I remember how he put it.

What I would say --

Justice Hugo L. Black: That would bring you about the record?

I don't know if it would make any difference but I (inaudible)

Mr. Wayne G. Barnett: No.

Justice Hugo L. Black: The second paragraph.

Mr. Wayne G. Barnett: 163.

Justice Hugo L. Black: Yes.

I don't know that that is crucial at all.

Mr. Wayne G. Barnett: No.

Justice Hugo L. Black: Suppose these are the accepted facts.

Mr. Wayne G. Barnett: It is the accepted facts that that he had to be a striker in order to get the payment.

Justice Hugo L. Black: Well, that's -- I'm talking about it's true that plaintiff or nonmember was given strike benefits only after it had shown himself in need of food, clothing, and shelter.

Mr. Wayne G. Barnett: Oh yes, that is true.

Justice Hugo L. Black: That is the fund used for that entirely?

Mr. Wayne G. Barnett: Yes, that is true.

Justice Hugo L. Black: That is conceded.

Mr. Wayne G. Barnett: Oh, yes.

We may know these agreements that that one of the conditions need, that was established by needs and the distributions are proportion to your needs.

Justice Hugo L. Black: And you say that it's limited to strikers and therefore, that's the difference.

Mr. Wayne G. Barnett: Yes.

Yes, sir and not only -- not that by itself is the difference.

I think if this interested organization have any ideological interest in the outcome of this strike could make payments for the limited strikers, it would be gifts.

The difference is that the payor here, the union -- we'll first look in through the union to the members that comprise of differences to the mutual -- the mutual rights given them by the -- by the fund.

They contribute to funds which will afford protection for them.

They aren't giving the --

Justice Hugo L. Black: Or the members of the racial group?

Had they had an organization and created a fund?

They agreed to do with nobody except those who are in need of food, shelter, and clothing.

Would they come under your definition?

Mr. Wayne G. Barnett: To -- I'm just asking if -- yes.

Justice Hugo L. Black: (Voice Overlap)

Mr. Wayne G. Barnett: And this is a fund which will be distributed only to the members of the group.

Justice Hugo L. Black: Yes, so that racial group.

They created a fund for that purpose.

Mr. Wayne G. Barnett: No, I think that would not be.

I don't see --

Justice Hugo L. Black: What?

What would be the -- there maybe a difference -- and crucial and that's the reason I asked?

Mr. Wayne G. Barnett: Yes.

Well, I maybe shifting down slightly here.

The explanation of why these are given to strikers and it must be that in some way further the strike.

Now the strike is brought on by the union to gain economic benefits for the employees.

Now, if the union were in fact only a disinterested organization, if we treat the union itself as being charitable, I think that still would be all right, but we don't treat unions as charitable organizations.

Whatever -- they may have certain lots of needs, but they are primarily concerned of promoting the economic welfare of the people that it represents.

Justice Hugo L. Black: May I ask you if Congress has been presented with this problem at all.

Mr. Wayne G. Barnett: No, sir.

Not that I know of.

Justice Hugo L. Black: Has the department made any effort to get them take it up?

Mr. Wayne G. Barnett: No, sir.

No sir.

Justice Hugo L. Black: How long has this effort been made -- elected?

Mr. Wayne G. Barnett: Since 1920.

Justice Hugo L. Black: Since 1920?

Mr. Wayne G. Barnett: Yes.

Justice Hugo L. Black: The Government has been collecting these funds -- taxes on these since 1920?

Mr. Wayne G. Barnett: Well as I answered the Chief Justice, we have no records of the extent to which people actually pay taxes when he announced.

This has been the standing policy and when the issue arises in a spot audit, it has been enforced so far as we're able to determine, but there's just no --

Justice Hugo L. Black: But do you have any statistics here that you can give us on that?

Mr. Wayne G. Barnett: No, sir.

No sir.

There's a letter in the back of our petition for certiorari from -- from the Commissioner explaining the administrative practice and the reason why there are no statistics.

It has been back for our petition in our brief.

Chief Justice Earl Warren: Mr. Barnett, do I understand that if this had been -- this fund had been for the purpose of relieving the stress of needy union members and that the money had been paid out in circumstances such as it was paid on here to this man, that the situation would be different, your position would be different?

Mr. Wayne G. Barnett: If it were limited to unemployed members, generally not strikers.

Chief Justice Earl Warren: To needy -- let's say to needy members.

Mr. Wayne G. Barnett: Yes.

Not necessarily strikers.

Chief Justice Earl Warren: Yes.

But it was paid out.

It was actually paid out to a striker.

Mr. Wayne G. Barnett: Yes.

Yes.

Chief Justice Earl Warren: Would the situation be different?

Mr. Wayne G. Barnett: I don't think it makes any (Inaudible) fact the striker if the policy is to give it to all unemployed members.

It's only because this is limited to strikers that we rely upon that aspect.

Now, in fact I think the unemployment benefits paid by the union would also be taxable because of the insurance aspect that they pay them dues for this insurance protection.

And as in all other kinds of insurance other than that specifically excluded to gain over the premiums, the contribution of this taxable income.

Now, certainly it would not be a gift.

Actually we think that the -- the open question isn't a gift question but rather the income question because we don't see how you can say this is a gift.

There's no giver.

They're all working for the mutual benefit and the question really is whether it's a gift -- sir, I'm sorry, whether it's income or not income and we think the Glenshaw Glass case has put that question to Congress and not to the Court.

I'd like to save a few minutes for rebuttal.

Chief Justice Earl Warren: Mr. Rauh.

Argument of Joseph L. Rauh, Jr.

Mr. Joseph L. Rauh, Jr.: May it please the Court.

The facts might profitably be elaborated and clarified.

In 1952, respondent went to work at Kohler.

In 1953, there was a union contract at Kohler for the first time.

Respondent did not join the union.

On March 4 -- 1st, 1954, this contract expired.

On March 4, four days later the workers at Kohler -- not the union, the workers at Kohler voted to strike.

The International Union held them back and here, number one in the chain of reasoning of Mr. Barnett breaks down.

The International Union of payor was the restraining influence here.

They say continuously, International Union urged them out on strike and then gave them something for going out.

That isn't what happened.

The workers at Kohler voted the strike, the record is clear, the International held them back as long as they could.

But on April 5th, after five weeks of working without a contract there was no longer a restrainable situation and the men went out on strike.

Now, remember the respondent is not a member of our union.

He did, however, go down to the headquarters and say, “I'm broke.

I have nothing.

I'm in need.”

That was all that was asked of it.

Are you want -- they never asked him if he was a member.

They said, “Are you on strike and do you need this?

How much do you need?”

Well, the need was very limited.

It was $16.5 of -- not cash, but a regular payment to the place where he lived at $9 a week and a $7.5 food budget that he could take to a store.

He was never asked if he picketed.

He was never asked if he would promise to go -- if he would promise to not to stay out on strike.

He was never asked that he was a member.

He was never asked if he can contribute any service.

The one test and the one test alone was need and on March 4, he received his voucher, his two vouchers, one to pay his rent and one to pay his food and that was all there is to it.

There was no --

Justice Felix Frankfurter: Mr. Rauh, this case could be decided restrictively to the facts that you just stated which I take for granted as so.

Is that why we're here?

Mr. Joseph L. Rauh, Jr.: It's up to Your Honor, as to determine how much farther in the record they would go in an instant case.

I am only here to present these particular facts.

For example, I stressed the fact this -- I stressed the facts because for example Mr. Barnett's whole argument on mutuality is out the window because our man -- never our client, never paid a dime into anything at any time.

Not only before he joined, but after he joined.

He was a non-dues paying member even after because he was on strike.

Justice Potter Stewart: So, that -- that to same therefore the argument goes out that this is just a return of something that he paid.

Mr. Joseph L. Rauh, Jr.: Yes, precisely, Your Honor.

I think you asked the question in which I would going to --

Justice Potter Stewart: I didn't ask it.

Somebody else did.

Mr. Joseph L. Rauh, Jr.: Someone asked Mr. Justice Brennan that --

Justice Felix Frankfurter: My question to you wasn't hostile because if that's all there is to the case, I don't see why we are (inaudible).

Mr. Joseph L. Rauh, Jr.: Well --

Justice Felix Frankfurter: It's just a -- strikingly just a very particular special case, but that isn't the norm of strike benefit --

Mr. Joseph L. Rauh, Jr.: All right.

I'm perfect --

Justice Felix Frankfurter: Is that the normal strike benefit?

Mr. Joseph L. Rauh, Jr.: No, sir.

And I'm perfectly prepared with the normal case.

I think this case itself --

Justice Felix Frankfurter: Well I'm just -- I'm not asking you one way or the other.

Just want to know the case about it.

It's what you said, then you have no business to be here.

Mr. Joseph L. Rauh, Jr.: Well, if you would have asked me how I got here, I don't explain that I'm not sure on that ground.

In this instance, I'm not the petitioner in this particular instance.

Now, the respondent didn't treat this $16.50 as income and of course it was the collector came after it and this was the case.

Now in the reply brief, the Government makes much of the charge that there's something wrong with the charge on page 42 and 43 but a clear reading of the charge will only indicate that the only thing that's wrong with it is repetition.

In other words, if a repetitious charge is necessarily bad, this is it.

But this is a perfectly consistent sound charge in which the judges say it works out of feelings of kindliness and charity not tax, it's not taxable.

If it's because of either a legal or moral obligation or free services, it's taxable.

You said it four or five times, but that's what he said.

And I suggest that the charge of anything is more favorable to the Government than the real rule of law because the real rule wouldn't include the moral obligation as a ground for taxability and yet the judge gave them this and it seems to me the charge is more than fair claim.

Mr. Barnett was not correct when he suggested that the judge only put this to the jury because -- having made up his mind.

He actually added judgment on the verdict for the plaintiff and it was only three months later, he changed his mind, reversed himself.

Justice Felix Frankfurter: You are arguing the other cases, aren't you?

Mr. Joseph L. Rauh, Jr.: No, Your Honor.

The Court --

Justice Felix Frankfurter: Will it give us the benefit of your wider experience with the unions?

Mr. Joseph L. Rauh, Jr.: I hope, too, sir.

In my limited time, I hope to argue that expressly.

I only want to say before coming to that that this case is clear.

It's clear on this jury finding which was a totally correct and the charge was correct.

If anything was wrong with the charge as I say because it's repetitious and secondly that is too favorable to the Government.

So, that's the -- it seems to me that's the end of the case, if you have our facts, our jury -- jury verdict and so forth.

Now, to answer Mr. Justice Frankfurter's question about that, what would the situation be if this man were a member, which I take it is possibly why we got here.

If this man had been a member and if all these other considerations are that Mr. Barnett referred to were here, we say that the doctrine of equal treatment would require the affirmance of this case.

In other words, everything in the whole law that's like strike relief is not taxed and I say everything advisably.

Social Security payments, that's old age, unemployment compensation are not taxed and I would suggest that the Commissioner and the Government has played Ring Around the Rosie with this Court on that very point.

The Commissioner said, strike benefits are taxable and they're different from social security because Congress intended Social Security payments not to be taxable.

Then the Government came to this Court and said, “Oh, we didn't mean that.

That's not the reason that Social Security is different from strike benefits.

The reason it's different is because Social Security is charitable.

Then we came to the Court and pointed out that that was an absolute misreading of history that Social Security is given as a right not as need and then in the reply brief this morning, the Government says, “It's different because Social Security is public not private.”

In other words, there has never been any distinction presented to this Court between Social Security payments and our pay -- and the payments of strike benefits and I want to point out to the Court the anomaly that the Commissioner and the Government are in here.

Suppose in New York City where strike -- where unemployment compensation is paid to a striker, it's legal in New York to pay unemployment compensation to strikers and in Connecticut, it is not.

Now suppose the UAW has a plant in New York and a plant in Connecticut.

In New York, under the Government's argument here, in New York, we get unemployment compensation as a matter of right based on the previous earnings of the worker and it's not taxable, according to the Government.

But in Connecticut where it's based on need and without any relationship to previous earnings, the Government suggests that this is taxable.

I just suggest to Your Honors that the anomaly that the Government's whole relationship here creates is what its fall.

Now, in answer to --

Justice Felix Frankfurter: Maybe the difficulty isn't' trying to deal with these questions on slogans like right, benefit, Social Security in relation to tax question.

Mr. Joseph L. Rauh, Jr.: It may be.

Justice Felix Frankfurter: And between private -- between private grant to public grant, there may be a difference that's valid --

Mr. Joseph L. Rauh, Jr.: But there has been no suggestion of that either in the law or in the Government's brief other than the assertions of it, Your Honor.

Justice Felix Frankfurter: With great respect to the Government's brief on speaking isn't to be limited by their briefs, is it?

Mr. Joseph L. Rauh, Jr.: I hadn't suggested that.

Mr. Justice Stewart asked the question whether welfare payment was taxable and of course it is not, but it isn't just public welfare payments that aren't taxable.

On page 25 or our brief, we point out all sorts of payments that are not taxable.

Chief Justice Earl Warren: Twenty five?

Mr. Joseph L. Rauh, Jr.: Twenty five of the white one, Mr. Chief Justice.

Public assistance payments, that was the -- I think the -- what Mr. Justice Stewart referred to.

Red Cross aid is not and finally, and this, it just seems to me is such an a fortiori, makes out an a fortiori case, an employer paid relief payments to his employees, an employer paid them to his employees and they said it wasn't taxable.

In the -- the Government doesn't attempt to distinguish these.

If there is not a single case in the law cited by the Government or found by our people and I -- we have an assistance of tax counsel and assistance, there is not a case in the entire law where subsistence payments for needy people have ever been taxed by the Commissioner at any time.

This is the first time in history where the Commissioner has suggested or the Government has -- has welded this together here because he disagrees on the Commissioner on all the reasoning in these things that a subsistence payment to a needy person by anyone would be taxable.

This is the first time that this has ever been suggested anywhere and it's being suggested here.

And I'd like before --

Justice Potter Stewart: Well, it has been suggested ever since 1920.

Mr. Joseph L. Rauh, Jr.: And precisely what I wanted to answer at this point, that is not -- that is not -- not a correct -- I don't mean to disagree with that.

It was not a correct statement by the Government.

On page 36 of our brief, in our footnote, we deal with this.

There was an obscure ruling in 1920 of one sentence, “Never enforce” and I can speak quite frankly about this because our union has had strikes.

We have had this problem.

This ruling was never enforced as you will see from this footnote.

It was not until 1950 -- remember it's not a regulation.

This was a single sentence statement in 1920.

It was not a regulation as the question by the Chief Justice would have -- have indicated.

It was a single sentence, never paid any attention to, never put in any public document until 1957.

It was never enforced in the interim.

This is the first case that comes up under it and indeed it was this case and the UAW's effort to get the -- to get the matter clarified that brought the thing up.

For the whole period from 1920 to 1957, nothing happened under here.

This was the -- this was not even a regulation.

It was certainly not known to Congress, had never been considered by Congress and clearly does not have a -- it's so much less of a reenactment of things such as this Court dealt with imbalanced forms of and other cases that I didn't even think the Government was seriously contending under the reenactment doctrine and I really don't suppose -- supposed they are.

If they are, our footnote there completely answers it.

Justice Potter Stewart: Well as a practical matter, the district judge makes a statement on page 46 of the record that there were unbelievable number of men who had pay a similar tax.

Mr. Joseph L. Rauh, Jr.: There is no -- there's not one word in the record, if Your Honor please, that supports that statement if he -- if he get -- if it has -- it happened at this particular time.

We had never been -- there had never been payments in ours and there's not one word in the record to support that statement.

I have read the entire record.

I'm sure Mr. Barnett would be of any help on that point.

Now, there's something wrong here.

When for the first time in history, the Government is suggesting this payment when the Commissioner is taxable, when the Commissioner is taking much more likely subjects of payment and saying they're not taxable such as the tornado relief from the employer.

The Commissioner is saying it's not taxable because it's need and now the Government is coming along in this one instance alone and doing -- well, what we suggest to what's wrong is obviously this is an income.

Apart from the gift to which I'll come if my time permits me, this is not income.

The only possible theory on which this could be income is the argument that Glenshaw Glass makes every receipt of every kind no matter where from and under what circumstances of income, I do not so read the ruling of Glenshaw Glass.

The Government really doesn't argue anything except that Glenshaw Glass makes everything.

Now, the problem here on Glenshaw Glass is this.

The Government -- Department of Justice argument is not with me.

It's not with my client.

It is with the Commission because on page 31 of our brief, we list about 20 cases where the Commissioner has excluded things from income.

If you look on page 21 -- 31 --

Chief Justice Earl Warren: Thirty one.

Mr. Joseph L. Rauh, Jr.: -- just before the footnote, rulings rendered before Glenshaw Glass cut unordered and adhered to by the Commissioner seems have to say, this walls of rulings rendered after Glenshaw Glass recognizes nontaxable.

About half of these were before Glenshaw Glass and about half of these were after Glenshaw Glass.

And it is perfectly clear that the Commissioner does not read Glenshaw Glass as the Government would have this Court read it.

If the Government is going to have an argument, they ought to settle inside the administration before they bring it to the taxpayers.

Justice Potter Stewart: Mr. Rauh, without going through all these and I haven't read them today, are these cases where the theory is based that the person is simply being made whole with the equivalent of a verdict for personal injuries or insurance for personal injuries?

Mr. Joseph L. Rauh, Jr.: Some would be, Your Honor, they wouldn't.

You have the Panama Social Security payment which was decided since this is a Social Security payment by the governor of Panama, and this was decided to be a payment after Glenshaw Glass is non-taxable.

In other words, Glenshaw Glass is interpreted one way as leaving all the -- leaving exclusions by the Commissioner and now another way by the Government here.

We're caught in this -- what really is a buzz off between the Commissioner and the Department of Justice.

Now, there is a way of reconciling these cases and we didn't feel we had any obligation to do it because the Government relies solely on Glenshaw Glass under circumstances it seems to be incorrect.

But we do try to reconcile the cases as sort of the -- that's what your job as a lawyer is to see if you can take all these things and make a principle out of it, we try.

Our principle, we suggest that these are alleviative things, that they alleviate some critical situation that they take care, not see payments to people who were persecuted by the Nazis.

Well, they had their persecution and this is an alleviation, that's one actually that was came down since Glenshaw Glass and we suggest that the whole idea of an alleviative payment may be the difference between Glenshaw Glass which was a windfall, the extra amount on punitive and exemplary damages and this other would be done as an alleviative payment.

Now, we don't have the burden of setting up a new rule of suggesting how you reconcile the Department of Justice, the Commissioner and the decisions of the Court, but we thought we would try it, and that would be my suggestion as to the simplest reconciliation of all the different-- certainly on the basis of the Commissioner's rulings, this is not income.

Certainly on the basis of anything we know that's ever been decided this is not income.

Now, just finally in the short time available, this is a gift.

Now, I've been arguing this case as though since Justice Frankfurter's question although my man isn't a member because I figured that the -- it seemed rather narrow and -- but I still have to come back, I'll have to remind the Court that the fact that I've taken new facts for this argument that the fact still remains, he is not a member and that the case before the Court is one without a member.

But let's say in coming back now and assuming he were a member and the jury verdict didn't apply for the equal treatment doctrine that I have been wrong despite this clarity and that the principles of income applied by the Commissioner should be disregarded by the Court and the Court should say that this is income because the Department of Justice asked it to say that even though the Commissioner takes roughly the other position, even if we are wrong in all of that, it seems unlikely.

It seems to me clearly that this is not a gift, that this is a gift and not taxable as a gift.

Now, certainly everybody reads there was no service.

We rendered no service.

He didn't have to picket, they didn't know this.

Now, what the Government really is saying, they're saying that he's getting compensated for the act of striking.

Well, that's really in any knowledge of strikes, that's nonsense.

Why do people go out on strike?

Well, they go out for their -- for basic principles.

The thought that a man who's got a $100 job is going out on a strike for 16.58, a seven and a half food voucher and a $9 room rent voucher, he didn't go out on a strike, because of this he went out on a strike for some reason that was in his heart and out he went.

Now, the Government's argument comes down to the fact really.

If you are in a class and you get something in a class, then you're getting it for being a member of that class.

You're getting it for the act of joining or remaining in that class and yet the Government concedes that there was no request that these days on strike.

Many who received the assistance went back in.

There is no -- that isn't in the record that many who receive assistance went back in, unless you're willing to say that anytime you're a member of a class, then you are getting you're payment for being a -- for joining or be --it's like if you give a gift to your grandchild, is that -- or your grandchildren, is that really a payment for their act of joining or remaining your grandchild?

I wouldn't have thought that until I heard the suggestion.

Our Constitution doesn't give an enforceable right to this.

Mr. Barnett, in his brief, says in so many words, there is no enforceable right to these things.

He says, “Oh but they setup a policy to give this.”

Of course there's a policy.

The policy is to alleviate hardship.

It's done --

Justice Felix Frankfurter: But that isn't the only reason, Mr. Rauh.

It might not be tempting to go out on strike but for this purpose.

Mr. Joseph L. Rauh, Jr.: Well, there is -- if Your Honor please, there is not a single suggestion at any time of any factual support for that argument.

Justice Felix Frankfurter: No, but I don't need any factual support.

I would know something without ever been finding tem in that thing.

Mr. Joseph L. Rauh, Jr.: I would say, sir, that there are mixed motives in practically everything one does in life.

Justice Felix Frankfurter: But you know, it's better than our view that -- that but for strike that the presence of a strike, the availability of the strike has something to do with getting people to go on strike.

Mr. Joseph L. Rauh, Jr.: I wouldn't accept that --

Justice Felix Frankfurter: You wouldn't accept.

Mr. Joseph L. Rauh, Jr.: Probably I will accept something else if I could compromise a little bit here on what -- what we could accept.

I would accept the proposition that there are mixed motives to our union, to the strikers, to everyone else in this kind of an operation.

Justice Felix Frankfurter: That's too large in abstraction.

Mr. Joseph L. Rauh, Jr.: Well, I was going to try to say what -- I was going to try to say what they were and what the dominant one was.

There is, in the union, a primary motive which seems to me to alleviate hardship and a subsidiary motive which is the strengthening of the strike.

I think to allow the subsidiary motive to determine the basic issue of what is to motive that the Government is arguing some motives.

Justice Felix Frankfurter: I think that's my suggestion.

That was my suggestion.

I said it was in fact in getting people to go on strike or to stay on the strike.

Mr. Joseph L. Rauh, Jr.: I wouldn't -- I couldn't quite --

Justice Felix Frankfurter: Would he -- would you agree with that?

Mr. Joseph L. Rauh, Jr.: No, I can't quite buy that.

Justice Felix Frankfurter: It doesn't very much bother you.

Mr. Joseph L. Rauh, Jr.: And I'll -- and the reason I can't, if Your Honor please, is that I think the -- the heat and emotion of a group about to take a strike code does not really consider that.

They had -- they are taking so much risk so beyond the poultry 1650 year, so much more are they putting into this but I don't consider this as the factor.

I would agree that once out, there are mixed motives here and -- but that the dominant motive because it goes to strikers, it goes to nonmembers it goes -- if you have stops, if they can get you together job elsewhere that the dominant motive is the relief of hardship.

And may I say that you, Mr. Justice Frankfurter that you'd be first I think on the knowledge of labor law history to recognize that a union is different from a corporation in relation to the making of gifts.

That union started as for internal organizations when in fact the law prevented them from striking and other methods in restraining the thing.

Justice Felix Frankfurter: My question hasn't implied my attitude towards the problem before us, but I'm surprised if you would deny that the existence of a strike has something to do with determining the recommendations of leaders of labor whether they should go on strike.

Mr. Joseph L. Rauh, Jr.: If this is a good example on that, if Your Honor please --

Justice Felix Frankfurter: I'm not talking about this particular thing.

I'm talking about the general problem of what motivates, when to strike, how long to continue it, who's to call in, and I must say I'm a bit surprised that you are so (Inaudible) doesn't affect this case.

Mr. Joseph L. Rauh, Jr.: And precisely -- I was going to say it's unimportant.

I'm just trying to speak with precision.

Justice Felix Frankfurter: But I like to get learning where I can get it.

Justice Charles E. Whittaker: Mr. Rauh.

Mr. Joseph L. Rauh, Jr.: Yes, Your Honor.

Justice Charles E. Whittaker: I understood you to say, you used this phrase, that some who have received these benefits have gone back in, by that, I assume you meant that after you received the benefits they've returned to work.

Mr. Joseph L. Rauh, Jr.: Yes, Your Honor.

Justice Charles E. Whittaker: Yes.

Now then, were they eligible after that to receive these benefits?

Mr. Joseph L. Rauh, Jr.: No, Your Honor, they wouldn't be in the class that it's given to their partners.

Justice Charles E. Whittaker: Because they would no longer striking?

Mr. Joseph L. Rauh, Jr.: That's right.

You must be a striker.

This is strike benefit.

In other words, if you have grandchildren benefits, you have to be a grandchild.

If you have strike benefits, you have to be a striker and therefore, when they went back, obviously they would get no more.

Justice Charles E. Whittaker: Is there not then some connection and relationship between the $16.50 pay than the continuation of the strike by remaining a striker?

Mr. Joseph L. Rauh, Jr.: I agree, if Your Honor please that there were in the unions a mixed motivation of hardship and strengthening this -- of alleviating hardship and strengthening striker.

I simply said that clearly the dominant motivation was the relief of hardship.

I did not -- nor I take the position that motives are so clear -- that they are not mixed motives and I would suggest that the Government recognizes this.

If a father gives money to his child, it may very well be that one of the major motives is the avoidance of the higher income tax bracket in which he would be.

He may write his son and saying, “I am giving you a million dollars because in this way you'll be paying the income on this and I will -- well on my remaining million we'll each pay half,” we each pay half as much taxes or as much of taxes together, that is still a gift.

The business motivation does not affect and the Government has conceded that in so many words.

In other -- in other words I'm suggesting what seems to be clearly the law that a mixed motivation will not defeat him if there -- is a primarily donative purpose in here, the hardship seems to be clearly the primary purpose.

Now, I would just take in conclusion my --

Justice Hugo L. Black: Before you can get to that just one question.

Has the -- so far as you know, as it's been in the effort to get Congress to exempt this or to make a clear statement (Inaudible) of anytime in any place.

Mr. Joseph L. Rauh, Jr.: Well, no, sir.

We're -- we've always been perfect clear that this was nontaxable and there was -- we'd never considered going --

Justice Hugo L. Black: There's no legislation.

Mr. Joseph L. Rauh, Jr.: -- to commerce and as the Government has never gone to Congress and asked for this.

It seems to me clearly this would be the place to settle it on.

In a situation, if Your Honor please, where every analogous ruling, they may not be identical, but every ruling within a mile of this has been for exemption either as non-income or as gift.

When everything within a mile of our case has been held by the Commissioner not to be taxable, it seems to me if he wants the taxes one thing out of the whole area of need, certainly the place to go is the Congress and not -- not to this Court where the case fell out.

I just want to make this one quote before my red light goes on is this.

When you -- somebody asked my why -- how did you get here?

I certainly wouldn't have enjoyed being -- we're not in the same category of the other cases that you're about to hear.

In other words, we got here first then along came two other cases which were joined with it by the Court which are wholly different.

I do not mean to reflect on the merits of those cases at all.

It seems to me under this Court's previous rules, those -- both those cases were gifts under this Court's previous holdings.

But whatever there maybe -- whatever maybe the decision in those cases, it has nothing to do with us.

We are not a part of the said -- those cases both involve payment for services.

One involves a man who did another man a business favor and got a Cadillac.

The other involves a pension -- or a $20,000 payment after he left.

Both of these involved the question which this Court will have to decide whether those are the kind of payments for services which defeat gifts.

There's no suggestion in our case of a service of any kind.

So, we got -- it seems to me that while we are in this -- while this is one of three cases which the Court sat down to gather in serving our case is totally different whatever maybe the outcome.