                  T.C. Summary Opinion 2002-121



                     UNITED STATES TAX COURT



                DELBERT C. GETMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 10742-01S.              Filed September 23, 2002.


     Delbert C. Getman, pro se.

     Blaine C. Holiday, 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.

     Respondent determined a deficiency of $6,412 in petitioner's

1996 Federal income tax.


     1
          Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
                               - 2 -


     The sole issue for decision is whether, under section 61(a),

a special longevity payment to petitioner, as a retiree, from his

former employer during 1996 is includable in gross income, or

whether such payment is excludable from gross income as 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.   Petitioner's legal residence at the time the petition

was filed was Bloomington, Minnesota.

     Petitioner is an attorney and, except for a brief period in

the practice of law, was employed on the editorial staff of West

Publishing Co. (the Company), a legal publishing company, at St.

Paul, Minnesota.   Petitioner began his employment with the

Company on July 1, 1954 and retired on December 1, 1979, a period

in excess of 25 years.   Petitioner's former employer was highly

successful in the legal publishing business and enjoyed an

excellent relationship with its employees.

     In early 1996, the Company announced to its employees and

retirees that the Company would be acquired in a merger with

the Thomson Corp. of Stamford, Connecticut.     Sometime in June

1996, the merger was completed, and West Information Publishing

Group became the surviving entity.     Petitioner, as a retiree,

received a letter from the Company, his former employer, in June
                               - 3 -


1996, which, in addition to announcing completion of the merger,

stated:


     West's past success and our future growth, as the legal
     publishing headquarters for Thomson, is a reflection of the
     tremendous effort of the entire West community. As
     announced in February, the Board of Directors approved the
     special payout of $1,000 for each year of service, with a
     minimum of $5,000 and a maximum of $25,000 per eligible
     employee/retiree. The special payment, subject to
     applicable tax withholding and any other deductions required
     by law, will be distributed on June 24, 1996, in recognition
     of the contributions of the more than 6,000 full-time
     employees and retirees.

     It is our understanding that under current Social Security
     law, your Social Security earnings should not be negatively
     affected. However, you must report the payment to Social
     Security as a "Special Payment" that is the result of your
     prior years of West service. A letter detailing the
     information you will need to provide to Social Security will
     be sent to you with the special payment check.


Shortly thereafter, petitioner received a payment of $25,000 from

the Company.   The accompanying cover letter stated, in part, that

the "special payment" was subject to "applicable tax withholding

and any other deductions required by law" and advised that, if

the recipient was a retiree and was receiving Social Security

benefits, the Social Security Administration should be notified

that the $25,000 payment was attributable to years of service

prior to 1996 to avoid any diminution of such retiree's Social

Security benefits due to income "earned" in 1996.   Petitioner

notified the Social Security Administration.
                               - 4 -


     In early 1997, the Company issued to petitioner a Form 1099-

R, Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., with respect to

the $25,000 payment to petitioner during 1996.2

     On his Federal income tax return for 1996, petitioner did

not include the $25,000 as income on his return.   Petitioner

attached to his return a statement acknowledging receipt of the

$25,000 but claiming that the payment was a gift and, therefore,

was excludable from gross income.

     In the notice of deficiency, respondent determined that the

$25,000 payment petitioner received from his former employer

during 1996 was includable in gross income.

     Section 61(a) defines income for income tax purposes as "all

income from whatever source derived" and spells out a number of

examples of such income.   Section 102(a), on the other hand,

specifically states that "Gross income does not include the value

of property acquired by gift, bequest, devise, or inheritance."

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

Supreme Court stated:


     the mere absence of a legal or moral obligation to make such
     a payment does not establish that it is a gift. * * * And,


     2
          The parties did not offer into evidence a copy of the
Form 1099-R, although petitioner acknowledged that Federal and
State income taxes were withheld from his $25,000 payment, and
such withholdings were reflected on the Form 1099-R.
                               - 5 -


     importantly, if the payment proceeds primarily from "the
     constraining force of any moral or legal duty," or from "the
     incentive of anticipated benefit" of an economic nature, * *
     * it is not a gift. And, conversely, "Where the payment is
     in return for services rendered, [it] is irrelevant that the
     donor derives no economic benefit from it." * * * A gift in
     the statutory sense, on the other hand, proceeds from a
     "detached and disinterested generosity," * * * "out of
     affection, respect, admiration, charity or like impulses." *
     * * And, in this regard, the most critical consideration, as
     the Court was agreed in the leading cases here, is the
     transferor's "intention." * * * "What controls is the
     intention with which payment, however voluntary, has been
     made." * * *


     The record does not support a finding that the $25,000

payment to petitioner, a former employee of the Company, was

intended to be a gift.   To be sure, while petitioner's former

employer was grateful to current and retired employees, including

petitioner, for their services to the Company over the years, the

record reflects that the payment in question was not imbued with

any characteristics that would make it a gift under the

principles recited above.   To the contrary, the Company

considered the payment as compensation for services rendered, and

this is reflected by the Company's issuance of an IRS Form 1099-R

and the withholding of Federal and State income taxes on the

payment.   Moreover, the Company was careful to point out that the

payment was not to be considered a payment for services rendered

during the year of the payment, 1996 (to avoid reduction of

Social Security benefits by retired recipients).   However,
                               - 6 -


implicit in such statement is that the payment represented

compensation for services rendered for years prior to 1996.

     Petitioner's position at trial was that, in Bogardus v.

Commissioner, 302 U.S. 34 (1937), similar payments were made to

former employees of a merged corporation, and those payments were

held to be gifts.   In that case, however, the Supreme Court found

that the facts and circumstances clearly reflected an intention

to make a gift, and, accordingly, the payments to employees and

former employees were not includable in gross income.     The facts

in this case, however, do not establish an intention by the

Company to make a gift to its former employees or that it

proceeded from a detached and disinterested generosity out of

affection, respect, admiration, charity, or like impulses.        The

Company's intention, as reflected in the record before the Court,

was an appreciation for the services of its present and former

employees and the Company's desire to enhance the compensation of

its employees and retirees for their past services.     Respondent

is sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                       Decision will be entered

                               for respondent.
