Dewling v. United States

Whitaker, Judge,

delivered the opinion of the court:

Plaintiff sues to recover income taxes assessed against him by reason of the inclusion in his gross income of amounts which, he says, were gratuities, and, therefore, not to be included.

If they were gratuities, they are not to be included because section 22 of Title 26, Internal Bevenue Code, says that “gifts” are not to be included in gross income.

The report of Commissioner Foster, to which no exception is taken, shows that the controversial sums were paid plaintiff pursuant to an Act of Congress (58 Stat. 257) which was passed in recognition of the exceptional character of the services rendered by plaintiff, among other United States citizens, in the construction of the Panama Canal. The first two sections of this Act read:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That in recognition of the distinguished services rendered in and about the construction, maintenance, operation, sanitation, and government of the Panama Canal, and the Canal Zone, during the construction period of the Panama Canal, from May 4,1904, to March 31, 1914, inclusive, by civilian officials and employees, citizens of the United States, the thanks of Congress are hereby extended to all and each of them so engaged or employed, who were not included in the recognition and benefits accorded by the Act of March 4,1915 (38 Stat. 1190).

Sec. 2. That in further recognition of the exceptional character of the services described in section 1, each civilian official and each civilian employee entitled to receive the thanks of Congress agreeably to the provisions of section 1, who has not been heretofore specially rewarded by gratuity, annuity, or other benefit under any provision of law; and who was engaged with, or employed by, the Isthmian Canal Commission or the Panama Eailroad Company on the Isthmus of Panama during the aforesaid construction period of the Panama Canal, for three years or more; and who, during such service, was a citizen of the United States; and who, on the date whereon this Act becomes effective, shall be living, shall be entitled to receive, and there shall be paid to him by the Government of the United States, for and during the remainder of his life, an annuity, based on the salary, pay, or compensation received by, and paid to him, for his aforesaid service, as follows:

Forty per centum of his average annual basic salary, pay, or compensation if such service was for as much as three years and not more than four years;

Fifty per centum of his average annual basic salary, pay, or compensation if such service was for more than four years and not exceeding six years; and

Sixty per centum of his average annual basic salary, pay, or compensation if such service was for more than six years.

This Act was passed on May 29, 1944. The services rendered, in recognition of which the Act was passed, had been rendered thirty years or more before. At the time it was passed the United States had discharged its obligations to .pay to these employees the wages for which they had agreed to work.

If the gratuities had been paid in the year the services were rendered, or shortly thereafter, a different question .would probably be presented; but thirty years intervened .before the Act of May 29, 1944, was passed. It was not passed in recognition of a legal obligation. All legal obligation had been discharged. It was passed as a “thank-offering” for arduous services rendered. The Act said that “in recognition of the distinguished services rendered * * * the thanks of Congress are hereby extended to all * * and that “in further recognition of the exceptional character of the services described” the annuities were awarded.

The amounts appropriated were by way of a bounty, a gift, or a gratuity.

It may also be said that this Act of 1944 was a complement to the Act of March 4, 1915 (38 Stat. 1190). By this latter Act the officers of the Army and Navy and of the Public Health Service were “extended the thanks of Congress * * * because of their services in connection with the construction of the Canal,” and for these services they were awarded certain increases in rank and pay. Civilian employees were not included. In the following year an attempt was made to recognize also the services of civilian ■employees, but it was not until 1944 that this attempt came to fruition.

Both Acts were passed not to fulfill a legal obligation, hut as a token of gratitude for services faithfully rendered in an insect-infested, fever-ridden, tropical land. Legally, the Government owed them nothing. What it appropriated for them was a token of “the thanks of Congress” for the services rendered. The amounts payable under this Act were “gifts” from the United States Government and should not be included in plaintiff’s income in any year in which they have been received. (See the Senate’s Keport on this bill, being Beport No. 330 to accompany S. 683, 78th Congress, 1st Session (58 Stat. 257).)

Plaintiff is entitled to recover. The entry of judgment Will be suspended until the filing of a stipulation by the parties, or, in the absence of a stipulation, until the incoming of a report by a commissioner showing the correct amount due computed in accordance with the findings of fact and this opinion, including interest as provided by law. It is so ordered.

Howell, Judge; Littleton, Judge; and Jones, Chief Judge, concur.