The opinion of the court was delivered by: Will, District Judge.
This action has been brought by plaintiff taxpayers for the
recovery of certain income taxes paid to the United States
Government. The jurisdiction of the court is asserted under
28 U.S.C. § 1346(a). The parties have entered into a stipulation of
uncontested facts and have submitted their arguments on the legal
question involved on briefs. For the reasons set forth below,
judgment will be entered in favor of the plaintiff.*fn1
During the years 1967 and 1968, plaintiff Charles N. Haverly
was the principal of a public elementary school in the City of
Chicago. During each of those two years, textbook publishers sent
plaintiff unsolicited sample copies of their publications. For
each of those years, all the textbooks received had an aggregate
fair market value at the time of receipt of $200.
The purpose of sending the samples was to provide plaintiff
with an opportunity to study the books to determine whether or
not they might fit the purposes of the instructional units in his
curriculum. No controls whatsoever were put on the use to which
plaintiff might put the texts. He was free to keep them or
dispose of them as he saw fit. The parties have agreed that they
were not intended to provide plaintiff with compensation for
anything he had done in the past or would do in the future for
the publishers. The books
were in effect free samples of a product which the senders hoped
plaintiff would recommend or purchase.
The parties have also agreed that the books were not gifts
within the meaning of § 102 of the Internal Revenue Code of
1954,*fn2 as the clear motive of the publishers in sending the
samples was their hope that the texts would receive favorable
consideration, and that plaintiff might then order them for use
at his school.
In 1968, plaintiff made a contribution of these books to the
library of the school where he was principal. The transfer was
without restriction and the defendant concedes that plaintiff was
entitled to a charitable contribution deduction under § 170 of
the Internal Revenue Code in the amount of $400, the value of the
books at the time they were contributed.
In reporting his taxable income for the year 1968, plaintiff
did not include the value of the textbooks received and donated
during that year in his gross income, but did deduct the value of
the books as a charitable contribution. Following an audit of his
1968 return, the Internal Revenue Service increased plaintiff's
taxable income by the value of the textbooks, and assessed a
deficiency in the amount of the tax resulting therefrom.
Plaintiff paid the amount of the deficiency, filed a claim for a
refund, and subsequently commenced this action to recover that
The question raised is whether an individual has income when he
receives and accepts unsolicited samples such as these textbooks.
The position of defendant is that once a person "manifests an
intent on his part to accept such property" it is properly
classified as taxable income. (Defendant's brief, p. 5). Here,
defendant argues, the claiming of the charitable contribution
deduction on the income tax return evidences the requisite intent
to accept the property, and therefore the value of the texts is
includable in plaintiff's gross income. Plaintiff, on the other
hand, contends that unsolicited samples cannot be considered
income at any point. They are not, he urges, income when they are
received, and they cannot be transformed into income by a
particular subsequent use or disposition.
We find that the samples in question do not constitute income.
Even if we had any doubt about the matter, we would have to
follow the well-settled rule that, when doubt arises as to the
taxability of an item, it must be resolved in favor of the
taxpayer. Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211
(1917); Dunbar v. Commissioner of Internal Revenue, 119 F.2d 367
(7th Cir. 1941); Commissioner of Internal Revenue v. Swift & Co.
E.B.A., 151 F.2d 625 (7th Cir. 1945).
First, it is clear that unsolicited samples do not fall within
any of the specifically enumerated categories of the income
sections of the Internal Revenue Code ("Code"). Section 61(a) of
the Code provides:
Except as otherwise provided in this subtitle, gross
income means all income from whatever source derived,
including (but not limited to) the following items:
(1) Compensation for services, including fees,
commissions, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in ...