                  T.C. Summary Opinion 2005-179



                     UNITED STATES TAX COURT



          JOHN F. AND MICHELE L. HAJEK, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 19369-03S.          Filed December 6, 2005.


     John F. and Michele L. Hajek, pro se.

     Shirley M. Francis, for respondent.



     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.




     1
      Unless otherwise indicated, section references hereafter
are to the Internal Revenue Code in effect for the years at
issue.
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     Respondent determined deficiencies of $3,818 and $4,275 in

petitioners’ Federal income taxes for 1999 and 2000,

respectively.

     The sole issue for decision is whether payments to John F.

Hajek (petitioner) from his employer, in addition to his regular

salary as an employee, constituted compensation for services

rendered under section 61(a)(1), or whether such payments

constituted a gift under section 102(a).

     Some of the facts were stipulated.    Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference.   Petitioners’ legal residence at the time the petition

was filed was Sandy, Oregon.

     Since 1993, petitioner was the general manager of a

corporation, Starwheel, Inc., which later changed its name to

Star Stamping and Manufacturing (the corporation).    The

corporation’s principal activity was a wheel tool and die

business that made spoke wheels for cars and dies.    The latter

activity was described as “tooling to make all * * * different

kinds of parts”.   The corporation was owned solely by

petitioner’s father-in-law, Roger Marchisset.    Petitioner Michele

L. Hajek, the daughter of Mr. Marchisset, had also worked for the

corporation from 1995 to 1998.    She was not an employee of the

corporation during the years at issue.
                               - 3 -


     For the years at issue, 1999 and 2000, petitioner’s wages

from the corporation were $20,200 and $15,600, respectively.     On

their joint Federal income tax returns for 1999 and 2000, these

amounts were reported as income.   However, in addition to his

wages, petitioner also received from the corporation, generally

on a weekly basis, payments that totaled $25,441 and $27,025,

respectively, during 1999 and 2000.    Over the years, petitioner

received more than $150,000 in such payments beginning in 1995.

The payments received in 1999 and 2000 were not included as

income on petitioners’ income tax returns for these years.      It is

these payments that are at issue in this case.   Petitioners

contend these payments were gifts and, therefore, do not

constitute gross income.   Respondent determined otherwise in the

notice of deficiency.

     For several years prior to 1999, the corporation experienced

financial problems due largely to foreign competition.    Mr.

Marchisset had, from time to time, contributed additional moneys

to keep the corporation afloat; however, over time, the

corporation was unable to survive and ceased doing business in

2001.   Before arriving at that point, however, in 1995, in an

attempt to bolster the corporation’s finances and in order to pay

petitioner a salary commensurate for his services, Mr. Marchisset

made an additional infusion of capital to the corporation that

was identified or maintained as a separate account on the
                                - 4 -


corporation’s books.   Based on a recommendation of the

corporation’s accountant, petitioner was allowed to draw out of

this account on a weekly basis amounts that were to be considered

as a gift by the corporation to petitioner.   No formal agreement

was executed to evidence the character of these payments.    The

belief was that, since these payments or draws were gifts and

coming directly from funds that had been advanced by Mr.

Marchisset, the payments would not constitute a wage or salary to

petitioner; therefore, the corporation would avoid payroll taxes

on the distributions, and, in addition, petitioners would enjoy

the benefits of tax-free income, since the payments were believed

to be gifts.   Respondent’s examination, however, did not result

in that hoped-for conclusion.   In the notice of deficiency,

respondent determined that these payments constituted

compensation for services rendered and, therefore, are gross

income under section 61(a).   Petitioners differ with that

determination.

     Section 61 provides that gross income includes “all income

from whatever source derived,” unless otherwise provided.    The

Supreme Court has consistently given this definition of gross

income a liberal construction “in recognition of the intention of

Congress to tax all gains except those specifically exempted.”

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955).

All realized accessions to wealth are presumed taxable income,
                                - 5 -


unless the taxpayer can demonstrate that an acquisition is

specifically exempted from taxation.     Id.   Moreover, section

1.61-2(a)(1), Income Tax Regs., provides that “Wages, salaries,

commissions paid salesmen * * * are income to the recipients

unless excluded by law”.

     Section 102(a) provides:   “Gross income does not include the

value of property acquired by gift”.     A payment constitutes a

gift if it is given in a spirit of “‘detached and disinterested

generosity’” and not as compensation for services.      Commissioner

v. Duberstein, 363 U.S. 278, 285-286 (1960) (quoting Commissioner

v. Lo Bue, 351 U.S. 243, 246 (1956)).     The intent of the

transferor determines whether the payment constitutes a gift.

     The amounts petitioner received from his employer

represented payments for his services.     Those amounts represented

compensation for services rendered.     The moneys came from

corporate funds.   Those amounts are includable in gross income

including that portion of the payments that came out of the

amounts advanced to the corporation by Mr. Marchisset.     None of

the payments can even be remotely connected to a situation that

could be considered as being “excluded by law” under section

1.61-2(a)(1), Income Tax Regs., or as a gift under section

102(a).   All the moneys paid to petitioner came out of the

corporate bank account, and there was no written agreement that

would have characterized those payments as anything but
                              - 6 -


compensation for services rendered.    Respondent, therefore, is

sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                      Decision will be entered

                              for respondent.
