Hornung v. Commissioner
47 T.C. 428, 1967 U.S. Tax Ct. LEXIS 153 (1967)
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Rule of Law:
Prizes and awards are includable in gross income and are not excludable as gifts or as awards for meritorious achievement if the achievement is in athletics. Furthermore, an economic benefit received in a commercial context, such as the free use of property, constitutes taxable income under the broad definition of Section 61.
Facts:
- Paul Hornung, a professional football player for the Green Bay Packers, was a cash basis taxpayer.
- On Sunday, December 31, 1961, in Green Bay, Wisconsin, Sport Magazine named Hornung the most valuable player of the NFL championship game.
- The prize for this award was a new Corvette automobile, which Sport Magazine awarded annually to promote its publication.
- At the time of the announcement, the Corvette was located at a Chevrolet dealership in New York City, which was closed, and the magazine's editor did not have the title or keys to give to Hornung.
- Hornung formally accepted and took possession of the Corvette at a promotional luncheon in New York City on January 3, 1962.
- During 1962, Ford Motor Co. furnished Hornung with the personal use of two successive Thunderbird automobiles, retaining title to the vehicles.
- Hornung was not contractually obligated to perform any services for Ford, but his use of the cars provided an implied endorsement for the company.
- In late 1961, Hornung's employer, the Green Bay Packers, gave a fur stole to his mother.
Procedural Posture:
- The Commissioner of Internal Revenue (Respondent) determined an income tax deficiency of $3,163.76 against Paul Hornung (Petitioner) for the 1962 tax year.
- The Commissioner asserted that Hornung failed to include the value of a Corvette, the personal use of two Thunderbirds, and a fur stole in his gross income.
- Hornung filed a petition in the Tax Court of the United States to challenge the deficiency determination.
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Issue:
Is the value of an automobile awarded to a professional athlete for an outstanding performance includable in his gross income for the tax year of physical receipt, and does the free personal use of other automobiles provided by a manufacturer also constitute taxable income?
Opinions:
Majority - Hoyt, J.
Yes, the value of the Corvette and the fair rental value of the Thunderbirds are includable in Hornung's 1962 gross income. The Corvette was not constructively received in 1961 because Hornung lacked unfettered control over the vehicle; his control was subject to substantial limitations as the car was in New York at a closed dealership and he possessed neither keys nor title. Therefore, it was received in 1962. The car's value is taxable income because it was not a gift, as Sport Magazine's motive was commercial promotion, not 'detached and disinterested generosity.' The prize is also not excludable under Section 74(b), which exempts awards for 'religious, charitable, scientific, educational, artistic, literary, or civic achievement,' because athletic achievement does not fall within the ordinary meaning of these categories. Similarly, the fair rental value of the Thunderbirds is gross income under Section 61. The arrangement was not a gift because Ford Motor Co.'s dominant motive was the anticipated commercial benefit of an implied endorsement. The free use of the cars represented an 'undeniable accession to wealth' under the precedent of Commissioner v. Glenshaw Glass Co., and thus must be included in gross income.
Analysis:
This case significantly clarifies the scope of gross income under the Internal Revenue Code, particularly concerning non-cash benefits. It establishes a firm precedent that athletic achievements do not qualify for the meritorious achievement prize exclusion under Section 74(b), limiting the exception to fields more traditionally associated with public good, like science or the arts. The decision also reinforces the broad 'accession to wealth' doctrine from Glenshaw Glass, applying it to in-kind benefits like the personal use of property, and solidifies the Duberstein 'transferor's intent' test for gifts, making it difficult for taxpayers to classify commercially motivated benefits as tax-free gifts. This ruling impacts how celebrities, athletes, and others who receive perks and prizes must treat those items for tax purposes.
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