FACTS
-Two cases had same issue:
1. D, Glenshaw Glass Company had won an award of punitive damages in an antitrust lawsuit.
-D did not declare this award as income or pay taxes on it, claiming that it was not subject to taxation.
The Internal Revenue Service brought suit to collect the tax.
2. William Goldman Theatres, Inc. neglected to report punitive damages as income. Again, the Internal Revenue Service sued to collect the tax.
ISSUE
-Was the award of damages taxable income?
HOLDING
-The award of treble damages was taxable income.
RULES
-Section 22(a) (the predecessor of current section 61(a)) was employed by Congress in order utilize "the full measure of its taxing power," as provided for under the Sixteenth Amendment.
-Amounts received by taxpayers that are instances of undeniable accessions to wealth, which are clearly realized and over which the taxpayers have complete dominion are taxable.
ANALYSIS
-Congress, in enacting section 22(a), intended to tax all gains except those specifically exempted.
-The Court then held that the amounts received by the taxpayers in this case were "instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion."
-This three-part "test" for determining income is broader than the earlier test employed by the Court in Eisner v. Macomber, and is to this day the preferred test for identifying gross income.
DEEPER ANALYSIS
-Congress, in enacting income taxation statutes that comprehend "gains or profits and income derived from any source whatever," intended to tax all gain except that which was specifically exempted.-Income is not limited to "the gain derived from capital, from labor, or from both combined."
-Income is realized whenever there are "instances of [1] undeniable accessions to wealth, [2] clearly realized, and [3] over which the taxpayers have complete dominion."
-Punitive damages qualify as income even though they are not derived from capital or from labor.
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