Wendell Olk v. United States
536 F.2d 876 (1976)
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Rule of Law:
Payments made by customers to service employees, such as 'tokes' given to casino dealers, are considered taxable income and not excludable gifts if they are received regularly as part of a system of pooling and distribution, even if the individual payments are motivated by a customer's impulsive generosity or superstition.
Facts:
- The taxpayer was employed as a craps dealer at two Las Vegas casinos.
- Casino patrons would at times give money, called 'tokes,' to the dealers.
- These payments were voluntary and often motivated by a player's impulsive generosity or superstition.
- Casino management either required or encouraged dealers to place all tokes into a common fund.
- The dealers at a given table were required to pool all tokes, and a dealer who kept a toke for themself would be terminated.
- The pooled tokes were split equally among the four dealers at the table at the end of each shift.
- The taxpayer received a regular, daily share of these pooled tokes, averaging between $10 and $20 per day.
- Dealers were forbidden from providing special services to patrons and were required to treat all patrons equally.
Procedural Posture:
- The taxpayer sued the United States for a refund of federal income taxes in the U.S. District Court, the trial court.
- Following a non-jury trial, the district court found that the tokes were the result of 'detached and disinterested generosity.'
- The district court held that the tokes were non-taxable gifts and entered judgment for the taxpayer.
- The Government, as appellant, appealed the district court's decision to the U.S. Court of Appeals for the Ninth Circuit, with the taxpayer as appellee.
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Issue:
Are payments known as 'tokes,' given voluntarily by casino patrons to craps dealers and systematically pooled and distributed among them, considered taxable income rather than non-taxable gifts under Section 102(a) of the Internal Revenue Code?
Opinions:
Majority - Sneed, Circuit Judge
Yes. 'Tokes' are taxable income, not non-taxable gifts. While the trial court found as a matter of fact that the patrons' dominant motive for giving tokes was 'impulsive generosity or superstition,' its further finding that the payments stemmed from 'detached and disinterested generosity' was an erroneous conclusion of law. Applying the standard from Commissioner v. Duberstein, payments motivated by superstition in a gambling context are not detached or disinterested; rather, they are 'involved and intensely interested' acts made in the hope of receiving good fortune in return. Furthermore, the regularity of the payments, the requirement of pooling, and the equal division among dealers indicate that the tokes are a form of compensation for services rendered, akin to tips, rather than gifts.
Analysis:
This case refines the application of the Commissioner v. Duberstein gift standard within a commercial service context. By distinguishing between the factual finding of a donor's motive (e.g., 'impulsive generosity') and the legal conclusion of whether that motive qualifies as 'detached and disinterested generosity,' the court asserted greater appellate authority over the ultimate tax classification. This decision solidifies the principle that regular, pooled gratuities received by employees are taxable compensation, effectively treating 'tokes' like tips. The ruling makes it significantly more difficult for service industry employees to classify systematic customer payments as tax-free gifts, thereby broadening the scope of what is considered taxable income.
