02 Haverly v. US

Tax1: Realization Requirement- 02
Basil Maguigad
HAVERLY vs. US library and for which he claimed a charitable deduction,
513 F.2D 224, MARCH 20, 1975|HASTING, J. constitutes gross income to the principal within the meaning
of Section 61 of the Internal Revenue Code of 1954, 26 U.S.C.
This action was brought by the plaintiffs in the district court 61.
for recovery of income taxes paid to the United States.
Jurisdiction was based on 28 U.S.C. 1346(a) (1). RULING
FACTS Section 61(a) of Title 26 of the United States Code provides:

"Except as otherwise provided in this subtitle, gross income
During the years 1967 and 1968 Charles N. Haverly was means all income from whatever source derived, including
the principal of the Alice L. Barnard Elementary School (but not limited to) the following items:" The section
in Chicago, Illinois. In each of these years publishers thereafter enumerates fifteen items none of which, the
sent to the taxpayer unsolicited sample copies of government concedes, encompass the receipt of sample
textbooks which had a total fair market value at the textbooks. The taxpayer concedes that receipt of the books
time of receipt of $400. does not fall within any of the specific exclusions from gross
income set out in Sections 101 through 124 of Title 26. The
The samples were provided, in the hope of receiving only question remaining is whether the value of the
favorable consideration, to give taxpayer an textbooks received is included within "all income from
opportunity to examine the books and determine whatever source derived."
whether they were suitable for the instructional unit
for which he was responsible. The publishers did The Supreme Court has frequently reiterated that it was
not intend that the books serve as compensation. the intention of Congress "to use the full measure of its
taxing power" and "to tax all gains except those
In 1968 taxpayer donated the books to the Alice L. specifically exempted."
Barnard Elementary School Library. The parties agreed
that the donation entitled the taxpayer to a charitable The Supreme Court has also held that the language of
deduction under 26 U.S.C. 170, in the amount of $400, Section 61(a) encompasses all "accessions to wealth,
the value of the books at the time of the contribution. clearly realized, and over which the taxpayers have
complete dominion."
The parties further stipulated that the
textbooks received from the publishers did not There are no reported cases which have applied
constitute gifts within the meaning of 26 U.S.C. these definitions of income to the question of the
102 since their transfer to the taxpayer did not receipt of unsolicited samples. The parties have
proceed from a detached and disinterested cited to the court a number of cases applying
generosity nor out of affection, respect, admiration, income definitions to other fact situations. We have
charity or like impulses. considered these cases, but we find them of no
particular assistance in resolving the question
Taxpayer's report of his 1968 income did not include the before us. In view of the comprehensive conception
value of the textbooks received, but it did include a of income embodied in the statutory language and
charitable deduction for the value of the books donated to the Supreme Court's interpretation of that
the school library. The Internal Revenue Service assessed language, we conclude that when the intent to
a deficiency against the taxpayer representing income exercise complete dominion over unsolicited
taxes on the value of the textbooks received. Taxpayer samples is demonstrated by donating those
paid the amount of the deficiency, filed a claim for samples to a charitable institution and taking a tax
refund and subsequently instituted this action to deduction therefor, the value of the samples
recover that amount. received constitutes gross income.
Upon agreement of the parties, the case was submitted The receipt of textbooks is unquestionably an
to the district court on the uncontested facts and briefs "accession to wealth." Taxpayer recognized the value of
for decision without trial. The district court issued a the books when he donated them and took a $400
memorandum opinion which held that receipt of the deduction therefor. Possession of the books increased the
samples did not constitute income. taxpayer's wealth. Taxpayer's receipt and possession of the
books indicate that the income was "clearly realized."
The court subsequently ordered, in accordance with its Taxpayer admitted that the books were given to him for his
decision, that plaintiffs recover from the United States personal retention or whatever disposition he saw fit to
the sum of $120.40 plus interest. The United States make of them. Although the receipt of unsolicited
appeals from that judgment. samples may sometimes raise the question of whether
the taxpayer manifested an intent to accept the
property or exercised "complete dominion" over it,
ISSUE(S) there is no question that this element is satisfied by the
unequivocal act of taking a charitable deduction for
Whether or not the value of unsolicited sample textbooks donation of the property.
sent by publishers to a principal of a public elementary
school, which he subsequently donated to the school's
Tax1: Realization Requirement- 02
Basil Maguigad
The district court recognized that the act of claiming a held that a newspaper's book reviewer must include in
charitable deduction does manifest an intent to accept his gross income the value of unsolicited books received
the property as one's own. It nevertheless declined to from publishers which are donated to a charitable
label receipt of the property as income because it organization and for which a charitable deduction is
considered such an act indistinguishable from other acts taken. This ruling was issued to supercede an earlier ruling,
unrelated to the tax laws which also evidence an intent to Rev.Rul. 70-330, 1970-1 Cum.Bull. 14, that mere retention of
accept property as one's own, such as a school principal unsolicited books was sufficient to cause them to be gross
donating his sample texts to the library without claiming a income.
deduction. We need not resolve the question of the tax
consequences of this and other hypothetical cases discussed The Internal Revenue Service has apparently made an
by the district court and suggested by the taxpayer. To administrative decision to be concerned with the
decide the case before us we need only hold, as we do, that taxation of unsolicited samples only when failure to tax
when a tax deduction is taken for the donation of those samples would provide taxpayers with double tax
unsolicited samples the value of the samples received benefits. It is not for the courts to quarrel with an
must be included in the taxpayer's gross income. agency's rational allocation of its administrative
resources.
This conclusion is consistent with Revenue Ruling 70-498,
1970-2 Cum.Bull. 6, in which the Internal Revenue Service

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Tax1: Realization Requirement- 02

FACTS Section 61(a) of Title 26 of the United States Code provides:

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