*1 COMMISSIONER OF INTERNAL HELVERING, REVENUE, HORST. 25, 1940. Argued 1940. Decided November

No. October Baum, Arnold Mr. with whom Solicitor General Bid- dle, Attorney Clark,. Assistant General and Messrs. and Morton Key K. Séwall brief, Rothschild were on the fpr petitioner. Bacon, Mr.-Harry Wiggins with whom H.

Mr. Selden brief, respondent. was on the *2 delivered opinion Justice Stone Mr.

Court. sole decision whether dur- gift, ing the taxable coupons donor’s interest detached year, from the to the donee in the bonds, delivered and later year realization of paid maturity, is the income taxable” . to*the donor. negotiable respondent,

'lh~1934 and 1935 owner of negotiable bonds, detached them *3 their date and shortly before due delivered them as a his son in year the same them at collected The maturity. Commissioner ruled that under the appli | of 1934, cable 22 the Revenue Act 48 of Stat. 686, 680, in the payments taxable, years the interest were respondent to the reported donor who his income paid, receipts on of Appeals cash basis. The Circuit Court the the of the of Tax Appeals reversed order Board sustaining the 2d 906; granted tax. 107 F. 39 B. T. A. We 757. of certiorari, importance 309 U. S. because of the the in administration of the laws and revenue because an in of conflict principle decision asserted below with that of Lucas 281 U. Earl, and with by decisions other circuit courts appeals. See Commissioner, Burnet, Bishop v. 54 F. 298; Dickey 2d F. 917, 921; 56 2d Van Meter v. 61 F. 2d Commissioner,

The thought court below that as for the consideration the coupons had passed to the obligor, by donor had, the gift, parted with all control over them their and pay- for ment, and that reason the case was distinguishable supra, Leininger, and Burnet Earl, Lucas v. for serv- assignment compensation where the U. S. rendition of the and preceded services,. ices had held taxable to income the donor. where the was coupon is the owner two holder a bond inde- right. kinds One is the separable and pendent" amount maturity and receive at principal td'demand The other capital investment. representing of the bond oí payments and receive interim nght is to demand on the amounts and on the investment .interest coupons. dStesTspecified by Together they an exchange given obligation pay principal the consid- was money presumably which property respondent, Here eration for of the bond. obligation acquired legal right had bonds, owner maturity specified the interest payment demand its to command and the the. n gain economic, to him. others, constituted an is all Admittedly gain taxpayer economic beginning From the laws taxable income. revenue interpreted defining have “realization” income been acquisition as the taxable rather than event, And “realization” hot' to receive is deemed it. paid. occur until income the decisions recognized regulations consistently receipt have cash not the realiza property characteristic taxpayer of income to cash receipts tion on the basis. taxpayer Where the does not receive payment of *4 or money property realization occur may when the last" .in taken- is obtains fruition the step he the of by gain economic which has already accruéd to him. Old Commissioner, Trust Colony Co. 279 U. 716; v. S. Corliss Bowers, 281 378. 376, Wells, v. U. S. Cf. v. 289 U. S. 670.

in the ordinary case the taxpayer acquires who the right to receive income he it, is taxed receives regardless of the right time when his payment receive

116 is until rule income not taxable accrued. the the has to mean that tax* realized never been taken fully has receipts on the cash basis, even payer, the by benefit of economic enjoyed gain represented income, escapé taxation because to receive can it from he has Himself payment not received obligor. founded administrative conveni- rule, on final only one postponement is tax ence, enjoyment of the income, usually receipt event taxa- taxpayer, exemption one by enjoyment by some tion consummated event where or taxpayer’s money other personal than receipt Castings Co. 282 Routzahn, Cf. Aluminum v. property. he This such use may U. occur when has made 98. 92, in- receive or disposition or of his control the its other place satisfactions which come as is, economic worth. The here whether payment one who in fact because services receives receipt payments is taxable on his interest he escape all payments, by can tax Sway ins giving of payment. ÍT income advance the”taxpayer pro- to his directly creditors the items of cures or earnings due Old him, Colony see Trust Co. v. Bowers, Commissioner, supra; Kerbaugh-Empire Co., v. Kirby 170; Co., 271 United States v. Lumber U. S. if he up sets a revocable trust with U. S. income 1, objects bounty, 166, payable §§ Reve 167, Bowers, supra; ofAct Corliss Dickey cf. v. nue Burnet, 56 F. 2d he does not escape taxation actually money. did not receive Cf. Doug because Willcuts, Helvering 296 U. S. 1; Clifford, las U. S. reasoning

Underlying thought these cases is “realized” assignor he,, because income, who owns controls the source also controls of that which he could have disposition *5 payment himself diverts the himself received as the procuring to others means satisfaction has fruits equally enjoyed taxpayer wants. his of his labor or investment and obtained satisfaction he collects uses the income his desires whether or whether disposes those he satisfactions, means of procuring to collect as the them. it supra. Cf. Burnet v. Wells, here, donor

Although the transfer the cou- has pons, any precluded possibility collecting them himself, nevertheless, by has his act, he procured pay- ment of the interest as a gift valuable a member of a family. Such use his economic gain, fight income, to procure receive a satisfaction which can only by expenditure obtained of money be or property, enjoyment would seem be the whether purchase satisfaction goods the corner the payment of his grocery, debt or there, such non- material may satisfactions result from as a campaign or community chest contribution, a son. though his favorite 'Even he never receives the money, money’s he derives worth from the disposition of he coupons has used money or money’s procuring worth a satisfaction which is pro- only by expenditure curable of money or money’s enjoyment worth. The of the economic benefit accruing to him by virtue of his acquisition of completely realized as would if have been he had the interest collected dollars and expended them for any purposes named. Wells, Burnet v. supra. In real sense has enjoyed compensation for money rendered, loaned services and not any the less so be- it is his cause reward for them. To say that one has a gift made thus derived from interest or earn- ings his donee has paid enjoyed never or realized the fruits of his investment labor, he has because assigned paying himself collecting them instead of them and then *6 donee, them the is to affront common understand- over to Com- experience.' of common ing deny to the facts and mon understanding experience and the touchstones revenue interpretation for the of the laws. power, .income, dispose of of is the equivalent to

ownership of that to The exercise it.. Jo..another,is, .enjoyment,, the the and income. hence the realization: the by income him who exercises' difficulty it. had no We have that applying proposi the assignment tion where the rendition of the preceded Earl, services, supra; Leininger, supra, Lucas v. recognized Leininger it that'in such was the case assignor a rendition by case the of the service the was by by the means which the income was controlled the assignment donor making and it effective. by disposition which the assignment of income is the controlled the ser vice the precedes assignment, both cases it is the exercise the power of disposition or of the interest with' the compensation, resulting pay donee, donor, the enjoyment ment to the the by from derived income them. n This was emphasized in Blair v. Commissioner, 300 respondent relies, on which U. S. where the distinction a gift was taken of income between derived from an obligation pay compensation to a gift of. income- In producing property. the circumstances of that case, income from the the trust property thought was equitable identified with be so ownership from which property, alone beneficiary derived his to receive the income and his power to command' disposition it, gift income the bene ficiary as a gift became effective of his ownership property producing it. Since gift was deemed to be a property, income was' held owner of property, income be^ donee, donor —a who was the refinement which' if unnecessary respondent’s contention was here is right, clearly inapplicable one gifts but of interest wages. thus an obligation Unlike income derived from pay compensation* interest or the income of the trust was no more the regarded donor than would from a lease a crop be the rent raised on a farm after farm given leasehold had been away. Blair v. Commissioner, supra, 12, 13 and cases cited. See also Smith, 289 U. 177. We Reinecke have held without deviation where the donor retains control of trust property the income is taxable him. although paid Bowers, to the Corliss donee. supra. Cf. Hel vering supra. v. Clifford,

The dominant of the purpose revenue is laws the taxa to’those earn tion who otherwise create the to right enjoy receive it and the benefit of it when paid. supra, Corliss v. See, Bowers, 378; Burnet Guggen v. heim, 288 S. 280, U. 283. The tax laid by the 1934 Reve from upon Act income “derived nue . . . or com wages, personal service, for of whatever pensation kind in and form paid, .; . . also whatever from . . .” there interest fairly interpreted cannot be fore not in applying to from interest or compensation derived come he when to receive it makes use who entitled in of it satisfactions dispose procuring which would ohly by the the money use otherwise received. statute which taxes the income

It is the donor supra; v. Earl, to his donee. Lucas although paid True, supra. in those Leininger, cases the service right assign- to income created followed point in of legal theory it was arguable ment, vested instantaneously right compensation although it; he never received assignor when paid, the income assignor of the to receive here the while assignment antedated the- right which transferred such an precluded vesting. and thus instantaneous such, for the statute affords no “attenuated basis subtle- rejected explicitly ties!” The distinction was as the basis decision in rejected Lucas Earl. It here; be should 'more the Earl case for no than can the purpose statute tax income to him earns, creates it enjoys escaped be by “anticipatory arrangements skilfully however devised” prevent-the income from for even a second vesting the donor.

isNor that there is perceived any adequate basis distinguishing gift between the of interest here and a of salary, commissions. owner a nego gift tiable of the bond and which it if represents, investment . not the lender, stands in place lender. When, of the coupons, separated he has interest from payments investment and procured .

payment' to his donee, he enjoyed has the economic of the income in benefits the same manner though and to the same extent the transfer were and in cases earnings, both the import of the statute is fruit to be attributed to a different tree .on grew. which it that; See Lucas Earl, supra, 115.

Reversed. The separate opinion of Mr. Justice McReynolds. *8 The stipulated. facts were In opinion of the court the. below the issues are thus adequately stated—

“The petitioner owned a number of coupon bonds. coupons represented The on the bonds and payable were to bearer. In 1934 he detached unmatured coupons of them, face of $25,182.50 value and transferred by manual to his son delivery a gift. The coupons in natured later on the same year, and the son collected face amount, $25,182.50, the. own his property. There

121 transaction, in petitioner kept 1935. The similar was a did not include any part He his. a cash basis. books on on moneys coupons collected The son included them years. for these two tax returns (cid:127) moneys added the returns. The Commissioner in- thé coupons petitioner’s collected on taxable deficiency year. The come determined tax each Tax three members sus- Appeals, dissenting, Board of Commissioner, holding tained the amounts taxable, to the coupons on the were as income collected petitioner.”

The decision of Board of Appeals Tax reversed, ivas I think. so, and properly given son unmatured were inde-

pendent negotiable instruments, complete in themselves. Through gift they became once the absolute prop- erty donee, free from the donor’s control and in no way dependent upon of the bonds. No ownership fraud purpose actual defraud the' revenue presented. Earl,

Neither Lucas v. U. S. nor Leininger, 136, support U. S. petitioner’s view. Blair Commissioner, 300 U. 5, 11, S. shows that neither involved an unrestricted completed transfer of property. decided,

Helvering 309 U. Clifford, 335, 336, after opinion below, is much relied upon by petitioner, but very involved facts different those now before us. There no separate thing was absolutely transferred beyond and put possible control the transferror. The Court affirmed that Clifford, both conveyor and trustee, “retained the substance enjoyment of full of all rights which previously he had in the “In 'property.” sub- (cid:127) stance control over the corpus was in all essential respects the same after the trust was created, as before.” “With that control his hands he would keep direct *9 over'all command needed remain substan- financial situation tially the same as before.” general approved Blair principles v. Commis- sioner, 300 U. S. applicable controlling. The challenged judgment should be affirmed.

The Chief concur Justice Mr. Justice Roberts opinion. this COMMISSIONER OF INTERNAL HELVERING, REVENUE, v. EUBANK. Argued 205.

No. October 1940. Decided November Raum, Arnold with Mr. whom Solicitor General Bid- dle, Attorney Assistant General Clark, and Messrs. J. Morton Louis Monarch and K. Rothschild were on the petitioner. for brief, Harry. Rudick,

Mr. J. with whom Mr. Drye, John W. on the brief, respondent. Jr. was