United States District Court, Northern District of Illinois, E.D
January 9, 1974
CHARLES N. HAVERLY AND RUTH L. HAVERLY, PLAINTIFFS,
UNITED STATES OF AMERICA, DEFENDANT.
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 property;
(8) Alimony and separate maintenance payments;
(10) Income from life insurance and endowment
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
We are mindful of the caveat contained within the statute that
the listing is not exclusive, as well as the rulings of the
Supreme Court that § 61(a) expresses a Congressional intent to
exert "the full measure of its taxing power," Commissioner of
Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct.
473, 99 L.Ed. 483 (1955); Helvering v. Clifford, 309 U.S. 331,
334, 60 S.Ct. 554, 84 L.Ed. 788 (1940); Helvering v. Midland Ins.
Co., 300 U.S. 216, 57 S.Ct. 423, 81 L.Ed. 612 (1937) (construing
language in one of § 61(a)'s predecessors). However, the finding
of an intent to tax all income, "from whatever source derived,"
does not resolve the question of what constitutes income in the
first place; and the categories contained in the statute itself
are instructive of the types of things that are so considered.
Unsolicited samples are not even arguably similar to any of the
Second, we can find no authority in any legal precedent which
would support defendant's categorization of the samples as
income. Neither our own research nor that of the parties has
uncovered any ruling which even considers the issue of treating
samples as income.
All of the cases cited by defendant are inapposite. The
government's reliance on Commissioner of Internal Revenue v.
Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960) is
totally misplaced. That case dealt entirely with the issue of the
definition of a "gift" as that term is used in § 22(b)(3) of the
Internal Revenue Code. Here, the parties have stipulated that the
sample textbooks were not gifts. Furthermore, the conclusion in
Duberstein that the automobile was income, rather than a gift,
was bottomed on a finding that it represented compensation to
Duberstein for past services, and an inducement to be of further
service in the future. 363 U.S. at 292. Compensation for services
is one of the specifically enumerated items of income in § 61(a).
Here, the parties have also stipulated that the textbooks did not
represent compensation to the plaintiff. Neither any language in
nor any implications of the Duberstein opinion have any bearing
on the issue of the definition of income per se.
Similarly, both the Clifford and Midland Ins. Co. cases, supra,
dealt with questions of whether certain receipts fell within
specifically enumerated categories of income contained in the
Code, and are irrelevant to the determination of whether a
category of items, which concededly does not fall within any of
those enumerated provisions, constitutes income.
Finally, Glenshaw Glass, supra, cannot support defendant's
position either. There, the Court dealt with the question of
whether money received as exemplary damages for fraud, and the
punitive two-thirds portion of a treble damage antitrust recovery
must be reported as gross income. The Court's holding that such
receipts, which were specifically requested and avidly pursued by
the parties involved, did constitute taxable income has no
bearing on the question before this court which deals with
receipts which were completely involuntary and which would
require positive action on the part of the recipient to avoid.
Third, we are not persuaded by defendant's use of Revenue
Ruling 70-498, as an appropriate analogy. That ruling provides
that the value of books accepted by a book reviewer during his
employment with a newspaper and donated by him to a charitable
organization is includable in his gross income. This ruling
suffers the same infirmity as the government's position in this
case, as discussed below. Moreover, to the extent that a reviewer
utilizes such books
in his business, they constitute tools of his trade and are
distinguishable from the book samples here involved.
Defendant concedes that income cannot be foisted upon an
individual involuntarily, and recognizes that that is exactly the
situation for the vast majority of unsolicited samples that are
sent to people not only in plaintiff's position, but to consumers
of all kinds: housewives, doctors, lawyers, book reviewers,
retailers, etc. They are not considered income both because of
their usually negligible value, and because of the inequity or
requiring the unwitting and involuntary recipient to take
positive action to avoid such receipts in order to avoid tax
consequences. It simply does not comport with the notions
underlying the tax laws to treat as income something the taxpayer
never asked for, may not want, and which may require considerable
effort to avoid or return.
However, perhaps bothered by the fact that certain of these
unsolicited samples can be used by the recipient to take
advantage of other provisions in the tax laws such as the
charitable contribution deduction, the government feels that
certain of those items must be construed as income. The taxpayer,
it urges, cannot have his cake and eat it too. The proposed line
to be drawn between "involuntary" and "voluntary" receipts is
that the item will not be considered income unless the recipient
"manifests an intent . . . to accept such property." Apparently,
however, the only act deemed by the Service to manifest the
requisite intent is the act of claiming a charitable contribution
deduction. Certainly such an act does evidence an intent to
accept the property as one's own. The problem is that such an
intent is equally as clearly evidenced when the housewife uses
the detergent sample for the family wash, or when the book
reviewer takes the book for his own personal library, or when the
store customer swallows the new brand of cracker being promoted,
or when the school principal donates his sample texts to the
school library without claiming any deduction, or when a judge
receives books from a publisher and puts them on the shelves in
his chambers for possible future reference.
Obviously, in terms of the government's own standard, these
other situations are indistinguishable. The Internal Revenue
Service is forced to ignore this inconsistency, however, because
of the absurdity of labeling all these items as "income." In
practice, this inconsistent treatment may not present tax
problems because the value of most samples is so negligible that
no one claims a deduction for them even if they are donated to
charitable institutions. But clearly a distinction based on the
value of the sample, or on the particular way in which a
recipient converts it to his or her own use, is not acceptable as
a matter of law based on any applicable tax provision, precedent
or logic. In the absence of a Congressional directive otherwise,
all unsolicited samples must either be considered income or not
income and we find they are not income. If it would be more
equitable to make distinctions as to tax treatment based on an
item's value, its subsequent disposition, or the manner in which
it was acquired, that is a matter for the Congress to decide, not
Since there is no basis for the position that Congress intended
to tax, as income, every unsolicited sample that is received and
accepted by a taxpayer, we must grant plaintiff's motion for
summary judgment. Defendant's motion for summary judgment will be
denied. An appropriate order will enter.