Varnedoe v. Allen ( 1946 )

HOLMES, Circuit Judge.

This appeal involves appellant’s income taxes for the years 1941, 1943, and 1944. A separate count for the year 1942 was not set forth in the complaint 'because, under the pay-as-you-go act of 1943, such taxes for 1942 were extinguished, and a special provision was made for the same in computing the tax for 1943.

The taxpayer is the widow of a fireman who, during his life, was a captain in the fire department of the city of Atlanta, Georgia. He died on December 20, 1931, at the age of 70, after having served 42 years with that department. On January 1, 1932, the widow commenced receiving payments of $100 per month from said city, and continuously received such páy-ments to the date of the trial of this case. These payments'were made pursuant to an act of the General Assembly of the State of Georgia, approved August 13, 1924, Ga. Laws 1924, pp. 167-173, as amended by acts approved August 7, 1925, Ga.Laws 1925, pp. 194-198, August 24, 1931, Ga.Laws 1931, pp. 223-228, and March 28, 1935, Ga.Laws 1935, pp. 450-456.¹

The question presented on this appeal is whether these payments constitute taxable income to her under Section 22(a) of the U. S. Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 22(a). The taxpayer has never been employed by the city of Atlanta, and has never given any personal consideration for the payments received by her. The salary received by her husband from the city amounted to $200 per month from 1924 to the date of his death, and during that period deductions were made from his salary as provided by the above cited acts of the State of Georgia. The widow paid to the Collector of Internal Revenue the income taxes assessed for the years in question, and instituted this action to recover the same with interest.

The taxpayer cites no provision of the statutes that specifically exempts this type of income. Section 22(a) .provides that gross income, among other things, includes compensation for personal services of whatever kind and in whatever form paid. Section 29.22(a)-2 of Treasury Regulations 111, promulgated under the Internal Revenue Code, provides that compensation for personal services includes, generally, “pensions or retiring allowances” and “are income to the recipients.” One exception to this general rule is stated in the following language: “However, so-called pensions awarded by one to whom no services have been rendered are mere gifts or gratuities and are not taxable.” ²

Usually the claimant of an exemption has the burden of proof, but we do not put our decision on this ground. If the payments to the taxpayer were not mere gifts or gratuities, under the above-quoted exception, awarded by one to whom no services had been rendered, they are taxable. It is not necessary that the services should have been rendered by the payee. The payor is the one to whom the services must have been rendered. The payments that the taxpayer received were awarded to her in consideration of services rendered to the city by her husband in his lifetime. They are gross income to her as compensation for services rendered within the meaning of Section 22(a) of the Internal Revenue Code, and in our opinion are not within the exception to the general rule with reference to mere gifts or gratuities.³

The judgment appealed from is affirmed.

1 Trotzier v. McElroy, 182 Ga. 719, 186 S.E. 817; Hollis v. Jones, 184 Ga. 273, 191 S.E. 127; West v. Anderson, 187 Ga. 587,1 S.E.2d 671.

2 Section 19.22(a)-2 of Treasury Regulations 103, promulgated under the Internal Revenue Code, as amended by T. D. 5151, 1942-1 Cum.Bull. 34, is substantially the same as the above-quoted Section of Treasury Regulations 111.

3 Willkie v. Commissioner, 6 Cir., 127 F.2d 953; Thomas v. Commissioner, 5 Cir., 135 F.2d 378; Flarsheim v. United States, 8 Cir., 156 F.2d 105; Sutro v. United States, N.D.Calif., June 16, 1942, 42-2 U.S.T.C. 10,215, wherein it was held that if there was an enforceable obligation, there was no gift. See also Mertens’ Law of Federal Income Taxation, Vol. 1, p. 384 et seq.