Hornung v. Commissioner
Encyclopedia
Hornung v. Commissioner is a case heard by the United States Tax Court
in 1967.
between the Green Bay Packers
and the New York Giants
. Paul Hornung scored a record 19 points in the game, helping the Packers win the championship 37-0. Sport Magazine informed Hornung after the game that he had been declared Sport Magazines outstanding player, and that as the most outstanding player, Hornung was awarded a 1962 Corvette.
On December 31, the Corvette was physically in New York City, where Sport Magazine’s offices were located. The editor in chief of Sport Magazine did not have the key or the title of the Corvette with him in Green Bay, nor did Hornung request immediate possession of the car at the time the award was accepted. Sport considered the car available to Hornung as soon as the award was announced, though Sport had not made any arrangements to have the car ready for Hornung on December 31, and Hornung did not actually receive the car until January 3, 1962 at an awards luncheon in New York. Hornung was not required to attend this luncheon or perform any other services in order to receive the vehicle.
The fair market value of the Corvette was $3,331.04. Hornung sold the vehicle and reported this sale on his 1962 Federal income tax return. However, he did not include the fair market value of the car in his tax return for 1962 or any other year.
Hornung was not asked to make any personal appearances or special efforts for the dealership, except that he was asked to "come in and say hi" during a Ford-sponsored children's football event. Ford had also furnished other Green Bay Packers with vehicles for their use around Green Bay.
Hornung did not recognize or report any income associated with this use. The value of this use was determined to be $600.
Hornung did not report any gross income with respect to the stole given to his mother.
Under section 451 of the Internal Revenue Code
, "the amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer ..."
Under the cash receipts method, which Hornung had appropriately utilized, items constituting gross income are to be included for the taxable year in which they are actually or constructively received.
The court noted that an item is constructively received when it has been set apart for the taxpayer or otherwise made available for him to draw upon, if the intention to do so is known. But "income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions."
The court found that on Sunday, December 31, 1961, there were substantial limitations or restrictions on Hornung’s control over the Corvette. At that time, the car was physically in the state of New York, and the editor in chief of Sport Magazine had neither keys nor title to the vehicle to give to Hornung to establish his possession. Additionally, because December 31, 1961 was a Sunday, the dealership where the car was kept was closed, and Hornung could not have accessed it on that date even if he wanted to.
Based on the above, the Tax Court held that the constructive receipt doctrine was inapplicable and the Corvette was received by Hornung for income tax purposes in 1962.
After the Court established that the car has been received in 1962, it turned to a determination of whether it should be included in gross income for that year, specifically addressing Hornung's "gift" argument. The court determined that the Corvette was not given as a gift because Sport Magazine had a motive for giving it beyond a 'detached and disinterested generosity' (a requisite for a judicial finding of a 'gift').
The court held that the Corvette clearly qualified as a prize or award under section 74(a) of the tax code (26 U.S.C. 74(a)). The court held that the Corvette did not qualify for any exceptions under section 74(b), and thus was gross income to Hornung. The court dismissed Hornung's claims that the championship football game constitutes an educational, artistic, scientific, or civic achievement. The court reaffirmed the principle that words in the revenue acts should be interpreted in their ordinary, everyday sense. The court believed the exceptions articulated in 74(b) refer to "activities enhancing in one way or another the public good." Simmons v. United States, 308 F.2d 160, 163 (C.A. 4, 1962).
The court focused on the dealership's intentions in making the loan, and determined that Hornung had not sufficiently proven that the loaned cars were given as a result of 'detached and disinterested generosity.'
The court then considered whether the economic benefit to Hornung was gross income. Relying on the test provided in Commissioner v. Glenshaw Glass Co., the court found that the benefit was an undeniable accession to wealth, clearly realized, and over which Hornung had complete dominion; and therefore was taxable gross income under section 61 of the tax code.
United States Tax Court
The United States Tax Court is a federal trial court of record established by Congress under Article I of the U.S. Constitution, section 8 of which provides that the Congress has the power to "constitute Tribunals inferior to the supreme Court"...
in 1967.
Issues
- Whether the value of a 1962 Chevrolet CorvetteChevrolet CorvetteThe Chevrolet Corvette is a sports car by the Chevrolet division of General Motors that has been produced in six generations. The first model, a convertible, was designed by Harley Earl and introduced at the GM Motorama in 1953 as a concept show car. Myron Scott is credited for naming the car after...
won by Paul Hornung (taxpayer) for his performance in the 1961 National Football LeagueNational Football LeagueThe National Football League is the highest level of professional American football in the United States, and is considered the top professional American football league in the world. It was formed by eleven teams in 1920 as the American Professional Football Association, with the league changing...
championship game should be included in his gross incomeGross incomeGross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...
for the taxable year 1962; - Whether the value of the use of the 1962 ThunderbirdFord ThunderbirdThe Thunderbird , is an automobile manufactured by the Ford Motor Company in the United States over eleven model generations from 1955 through 2005...
automobiles furnished to Hornung by FordFord Motor CompanyFord Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
should be included in gross income for the taxable year 1962; - Whether Hornung's gross income for 1962 should include the value of a fur stole received by his mother from his employer.
Pertaining to the 1962 Corvette (Issue 1)
Sport Magazine annually awarded a new Corvette to the outstanding player in the National Football League championship game. The 1961 National Football League Championship was played on Sunday, December 31, 1961 in Green Bay, WisconsinGreen Bay, Wisconsin
Green Bay is a city in and the county seat of Brown County in the U.S. state of Wisconsin, located at the head of Green Bay, a sub-basin of Lake Michigan, at the mouth of the Fox River. It has an elevation of above sea level and is located north of Milwaukee. As of the 2010 United States Census,...
between the Green Bay Packers
Green Bay Packers
The Green Bay Packers are an American football team based in Green Bay, Wisconsin. They are members of the North Division of the National Football Conference in the National Football League . The Packers are the current NFL champions...
and the New York Giants
New York Giants
The New York Giants are a professional American football team based in East Rutherford, New Jersey, representing the New York City metropolitan area. The Giants are currently members of the Eastern Division of the National Football Conference in the National Football League...
. Paul Hornung scored a record 19 points in the game, helping the Packers win the championship 37-0. Sport Magazine informed Hornung after the game that he had been declared Sport Magazines outstanding player, and that as the most outstanding player, Hornung was awarded a 1962 Corvette.
On December 31, the Corvette was physically in New York City, where Sport Magazine’s offices were located. The editor in chief of Sport Magazine did not have the key or the title of the Corvette with him in Green Bay, nor did Hornung request immediate possession of the car at the time the award was accepted. Sport considered the car available to Hornung as soon as the award was announced, though Sport had not made any arrangements to have the car ready for Hornung on December 31, and Hornung did not actually receive the car until January 3, 1962 at an awards luncheon in New York. Hornung was not required to attend this luncheon or perform any other services in order to receive the vehicle.
The fair market value of the Corvette was $3,331.04. Hornung sold the vehicle and reported this sale on his 1962 Federal income tax return. However, he did not include the fair market value of the car in his tax return for 1962 or any other year.
Pertaining to the 1962 Thunderbirds (Issue 2)
In July 1962, Hornung asked a friend to arrange for a car to be available for him to drive while in Green Bay. A local Ford dealership furnished Hornung with a 1962 Thunderbird, later exchanging the original for a second 1962 Thunderbird. The title to the cars remained with Ford, though Hornung paid the insurance and all operating costs while driving the Thunderbirds.Hornung was not asked to make any personal appearances or special efforts for the dealership, except that he was asked to "come in and say hi" during a Ford-sponsored children's football event. Ford had also furnished other Green Bay Packers with vehicles for their use around Green Bay.
Hornung did not recognize or report any income associated with this use. The value of this use was determined to be $600.
Pertaining to the Fur Stole (Issue 3)
After winning the Western Division title of the National Football League in 1961, Vince Lombardi bought and distributed fur stoles to the wives, friends, and mothers of each player on the team. Hornung's mother received the stole in 1961. The stoles were reported by the Packers as "Other Unallowable Deductions" and were described as "Awards to players' wives, etc." The stoles were valued at $395 per stole, less an 8-percent bulk discount.Hornung did not report any gross income with respect to the stole given to his mother.
Pertaining to the 1962 Corvette (Issue 1)
Hornung argued both that the Corvette was a gift and therefore exempt from federal income tax, and alternatively that it was constructively received by him in 1961, and therefore was not subject to federal income tax in the year of 1962. The court first addressed Hornung's second argument.Under section 451 of the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...
, "the amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer ..."
Under the cash receipts method, which Hornung had appropriately utilized, items constituting gross income are to be included for the taxable year in which they are actually or constructively received.
The court noted that an item is constructively received when it has been set apart for the taxpayer or otherwise made available for him to draw upon, if the intention to do so is known. But "income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions."
The court found that on Sunday, December 31, 1961, there were substantial limitations or restrictions on Hornung’s control over the Corvette. At that time, the car was physically in the state of New York, and the editor in chief of Sport Magazine had neither keys nor title to the vehicle to give to Hornung to establish his possession. Additionally, because December 31, 1961 was a Sunday, the dealership where the car was kept was closed, and Hornung could not have accessed it on that date even if he wanted to.
Based on the above, the Tax Court held that the constructive receipt doctrine was inapplicable and the Corvette was received by Hornung for income tax purposes in 1962.
After the Court established that the car has been received in 1962, it turned to a determination of whether it should be included in gross income for that year, specifically addressing Hornung's "gift" argument. The court determined that the Corvette was not given as a gift because Sport Magazine had a motive for giving it beyond a 'detached and disinterested generosity' (a requisite for a judicial finding of a 'gift').
The court held that the Corvette clearly qualified as a prize or award under section 74(a) of the tax code (26 U.S.C. 74(a)). The court held that the Corvette did not qualify for any exceptions under section 74(b), and thus was gross income to Hornung. The court dismissed Hornung's claims that the championship football game constitutes an educational, artistic, scientific, or civic achievement. The court reaffirmed the principle that words in the revenue acts should be interpreted in their ordinary, everyday sense. The court believed the exceptions articulated in 74(b) refer to "activities enhancing in one way or another the public good." Simmons v. United States, 308 F.2d 160, 163 (C.A. 4, 1962).
Pertaining to the 1962 Thunderbirds (Issue 2)
Hornung argued that the use of the Thunderbirds was a gift under section 102, since he was not obligated to perform any services to use the cars.The court focused on the dealership's intentions in making the loan, and determined that Hornung had not sufficiently proven that the loaned cars were given as a result of 'detached and disinterested generosity.'
The court then considered whether the economic benefit to Hornung was gross income. Relying on the test provided in Commissioner v. Glenshaw Glass Co., the court found that the benefit was an undeniable accession to wealth, clearly realized, and over which Hornung had complete dominion; and therefore was taxable gross income under section 61 of the tax code.