Money received as exemplary damages for fraud or as the punitive
two-thirds portion of a treble damage antitrust recovery must be
reported by a taxpayer as "gross income" under § 22(a) of the
Internal Revenue Code of 1939. Pp.
348 U. S.
427-433.
(a) In determining what constitutes "gross income" as defined in
§ 22(a), effect must be given to the catch-all language "gains or
profits and income derived from any source whatever." Pp.
348 U. S.
429-430.
(b)
Eisner v. Macomber, 252 U.
S. 189, distinguished. Pp.
348 U. S.
430-431.
(c) The mere fact that such payments are extracted from the
wrongdoers as punishment for unlawful conduct cannot detract from
their character as taxable income to the recipients. P.
348 U. S.
431.
(d) A different result is not required by the fact that § 22 (a)
was reenacted without change after the Board of Tax Appeals had
held punitive damages nontaxable in
Highland Farms Corp.,
42 B.T.A. 1314. Pp.
348 U. S.
431-432.
(e) The legislative history of the Internal Revenue Code of 1954
does not require a different result. The definition of gross income
was simplified, but no effect upon its present broad scope was
intended. P.
348 U. S.
432.
(f) Punitive damages cannot be classified as gifts, nor do they
come under any other exemption in the Code. P.
348 U. S.
432.
211 F.2d 928 reversed.
Page 348 U. S. 427
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
This litigation involves two cases with independent factual
backgrounds, yet presenting the identical issue. The two cases were
consolidated for argument before the Court of Appeals for the Third
Circuit, and were heard en banc. The common question is whether
money received as exemplary damages for fraud or as the punitive
two-thirds portion of a treble damage antitrust recovery must be
reported by a taxpayer as gross income under § 22(a) of the
Internal Revenue Code of 1939. [
Footnote 1] In a single opinion, 211 F.2d 928, the Court
of Appeals affirmed the Tax Court's separate rulings in favor of
the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the frequent
recurrence of the question and differing interpretations by the
lower courts of this Court's decisions bearing upon the problem, we
granted the Commissioner of Internal Revenue's ensuing petition for
certiorari. 348 U.S. 813.
The facts of the cases were largely stipulated, and are not in
dispute. So far as pertinent, they are as follows:
Commissioner v. Glenshaw Glass Co. -- The Glenshaw
Glass Company, a Pennsylvania corporation, manufactures glass
bottles and containers. It was engaged in protracted litigation
with the Hartford-Empire Company, which manufactures machinery of a
character used by Glenshaw. Among the claims advanced by
Glenshaw
Page 348 U. S. 428
were demands for exemplary damages for fraud [
Footnote 2] and treble damages for injury to
its business by reason of Hartford's violation of the federal
antitrust laws. [
Footnote 3] In
December, 1947, the parties concluded a settlement of all pending
litigation by which Hartford paid Glenshaw approximately $800,000.
Through a method of allocation which was approved by the Tax Court,
18 T.C. 860, 870-872, and which is no longer in issue, it was
ultimately determined that, of the total settlement, $324,529.94
represented payment of punitive damages for fraud and antitrust
violations. Glenshaw did not report this portion of the settlement
as income for the tax year involved. The Commissioner determined a
deficiency, claiming as taxable the entire sum less only deductible
legal fees. As previously noted, the Tax Court and the Court of
Appeals upheld the taxpayer.
Commissioner v. William Goldman Theatres, Inc. --
William Goldman Theatres, Inc., a Delaware corporation operating
motion picture houses in Pennsylvania, sued Loew's, Inc., alleging
a violation of the federal antitrust laws and seeking treble
damages. After a holding that a violation had occurred,
William
Goldman Theatres, Inc. v. Loew's Inc., 150 F.2d 738, the case
was remanded to the trial court for a determination of damages. It
was found that Goldman had suffered a loss of profits equal to
$125,000, and was entitled to treble damages in the sum of
$375,000.
William Goldman Theatres, Inc. v. Loew's,
Inc., 69 F. Supp.
103,
aff'd 164 F.2d 1021,
cert. denied, 334
U.S. 811. Goldman reported only $125,000 of the recovery as gross
income, and claimed that the $250,000
Page 348 U. S. 429
balance constituted punitive damages, and, as such, was not
taxable. The Tax Court agreed, 19 T.C. 637, and the Court of
Appeals, hearing this with the
Glenshaw case, affirmed.
211 F.2d 928.
It is conceded by the respondents that there is no
constitutional barrier to the imposition of a tax on punitive
damages. Our question is one of statutory construction: are these
payments comprehended by § 22(a)?
The sweeping scope of the controverted statute is readily
apparent:
"SEC. 22. GROSS INCOME."
"(a) GENERAL DEFINITION. 'Gross income' includes gains, profits,
and income derived from salaries, wages, or compensation for
personal service . . . of whatever kind and in whatever form paid,
or from professions, vocations, trades, businesses, commerce, or
sales, or dealings in property, whether real or personal, growing
out of the ownership or use of or interest in such property; also
from interest, rent, dividends, securities, or the transaction of
any business carried on for gain or profit,
or gains or profits
and income derived from any source whatever. . . ."
(Emphasis added.) [
Footnote
4]
This Court has frequently stated that this language was used by
Congress to exert in this field "the full measure of its taxing
power."
Helvering v. Clifford, 309 U.
S. 331,
309 U. S. 334;
Helvering v. Midland Mutual Life Ins. Co., 300 U.
S. 216,
300 U. S. 223;
Douglas v. Willcuts, 296 U. S. 1,
296 U. S. 9;
Irwin v. Gavit, 268 U. S. 161,
268 U. S. 166.
Respondents contend that punitive damages, characterized as
"windfalls" flowing from the culpable conduct of third parties, are
not within the scope of the section. But Congress applied no
limitations as to the source of taxable receipts, nor
restrictive
Page 348 U. S. 430
labels as to their nature. And the Court has given a liberal
construction to this broad phraseology in recognition of the
intention of Congress to tax all gains except those specifically
exempted.
Commissioner v. Jacobson, 336 U. S.
28,
336 U. S. 49;
Helvering v. Stockholms Enskilda Bank, 293 U. S.
84,
293 U. S. 87-91.
Thus, the fortuitous gain accruing to a lessor by reason of the
forfeiture of a lessee's improvements on the rented property was
taxed in
Helvering v. Bruun, 309 U.
S. 461.
Cf. Robertson v. United States,
343 U. S. 711;
Rutkin v. United States, 343 U. S. 130;
United States v. Kirby Lumber Co., 284 U. S.
1. Such decisions demonstrate that we cannot but ascribe
content to the catchall provision of § 22(a), "gains or profits and
income derived from any source whatever." The importance of that
phrase has been to frequently recognized since its first appearance
in the Revenue Act of 1913 [
Footnote 5] to say now that it adds nothing to the meaning
of "gross income."
Nor can we accept respondents' contention that a narrower
reading of § 22(a) is required by the Court's characterization of
income in
Eisner v. Macomber, 252 U.
S. 189,
252 U. S. 207,
as "the gain derived from capital, from labor, or from both
combined." [
Footnote 6] The
Court was there endeavoring to determine whether the distribution
of a corporate stock dividend constituted a realized gain to the
shareholder, or changed "only the form, not the essence," of
Page 348 U. S. 431
his capital investment.
Id. at
252 U. S. 210.
It was held that the taxpayer had "received nothing out of the
company's assets for his separate use and benefit."
Id. at
252 U. S. 211.
The distribution, therefore, was held not a taxable event. In that
context -- distinguishing gain from capital -- the definition
served a useful purpose. But it was not meant to provide a
touchstone to all future gross income questions.
Helvering v.
Bruun, supra, at
309 U. S.
468-469;
United States v. Kirby Lumber Co.,
supra, at
284 U. S. 3.
Here, we have instances of undeniable accessions to wealth,
clearly realized, and over which the taxpayers have complete
dominion. The mere fact that the payments were extracted from the
wrongdoers as punishment for unlawful conduct cannot detract from
their character as taxable income to the recipients. Respondents
concede, as they must, that the recoveries are taxable to the
extent that they compensate for damages actually incurred. It would
be an anomaly that could not be justified in the absence of clear
congressional intent to say that a recovery for actual damages is
taxable, but not the additional amount extracted as punishment for
the same conduct which caused the injury. And we find no such
evidence of intent to exempt these payments.
It is urged that reenactment of § 22(a) without change since the
Board of Tax Appeals held punitive damages nontaxable in
Highland Farms Corp., 42 B.T.A. 1314, indicates
congressional satisfaction with that holding. Reenactment --
particularly without the slightest affirmative indication that
Congress ever had the
Highland Farms decision before it --
is an unreliable indicium, at best.
Helvering v. Wilshire Oil
Co., 308 U. S. 90,
308 U. S.
100-101;
Koshland v. Helvering, 298 U.
S. 441,
298 U. S. 447.
Moreover, the Commissioner promptly published his nonacquiescence
in this portion of the
Highland Farms holding, [
Footnote 7] and has,
Page 348 U. S. 432
before and since, consistently maintained the position that
these receipts are taxable. [
Footnote 8] It therefore cannot be said with certitude
that Congress intended to carve an exception out of § 22(a)'s
pervasive coverage. Nor does the 1954 Code's [
Footnote 9] legislative history, with its
reiteration of the proposition that statutory gross income is
"all-inclusive," [
Footnote
10] give support to respondents' position. The definition of
gross income has been simplified, but no effect upon its present
broad scope was intended. [
Footnote 11] Certainly punitive damages cannot reasonably
be classified as gifts,
cf. Commissioner v. Jacobson,
336 U. S. 28,
336 U. S. 47-52,
nor do they come under any other exemption provision in the Code.
We would do violence to the plain meaning of the statute and
restrict a clear legislative attempt to
Page 348 U. S. 433
bring the taxing power to bear upon all receipts
constitutionally taxable were we to say that the payments in
question here are not gross income.
See Helvering v. Midland
Mutual Life Ins. Co., supra, at
300 U. S.
223.
Reversed.
MR. JUSTICE DOUGLAS dissents.
MR. JUSTICE HARLAN took no part in the consideration or decision
of this case.
* Together with
Commissioner of Internal Revenue v. William
Goldman Theaters, Inc., which was a separate case decided by
the Court of Appeals in the same opinion.
[
Footnote 1]
53 Stat. 9, 53 Stat. 574, 26 U.S.C. § 22(a).
[
Footnote 2]
For the bases of Glenshaw's claim for damages from fraud,
see Shawkee Manufacturing Co. v. Hartford-Empire Co.,
322 U. S. 271;
Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.
S. 238.
[
Footnote 3]
See Hartford-Empire Co. v. United States, 323 U.
S. 386,
324 U. S. 324 U.S.
570.
[
Footnote 4]
See note 1
supra.
[
Footnote 5]
38 Stat. 114, 167.
[
Footnote 6]
The phrase was derived from
Stratton's Independence, Ltd. v.
Howbert, 231 U. S. 399,
231 U. S. 415,
and
Doyle v. Mitchell Bros. Co., 247 U.
S. 179,
247 U. S. 185,
two cases construing the Revenue Act of 1909, 36 Stat. 11, 112.
Both taxpayers were "wasting asset" corporations, one being engaged
in mining, the other in lumbering operations. The definition was
applied by the Court to demonstrate a distinction between a return
on capital and "a mere conversion of capital assets."
Doyle v.
Mitchell Bros. Co., supra, at
247 U. S. 184.
The question raised by the instant case is clearly
distinguishable.
[
Footnote 7]
1941-1 Cum.Bull, 16.
[
Footnote 8]
The long history of departmental rulings holding personal injury
recoveries nontaxable on the theory that they roughly correspond to
a return of capital cannot support exemption of punitive damages
following injury to property.
See 2 Cum.Bull. 71; I-1
Cum.Bull. 92, 93; VII-2 Cum.Bull. 123; 1954-1 Cum.Bull. 179, 180.
Damages for personal injury are, by definition, compensatory only.
Punitive damages, on the other hand, cannot be considered a
restoration of capital for taxation purposes.
[
Footnote 9]
68A Stat. 3
et seq. Section 61(a) of the Internal
Revenue Code of 1954, 68A Stat. 17, is the successor to § 22(a) of
the 1939 Code.
[
Footnote 10]
H.R.Rep.No.1337, 83d Cong., 2d Sess. A18; S.Rep.No.1622, 83d
Cong., 2d Sess. 168.
[
Footnote 11]
In discussing § 61(a) of the 1954 Code, the House Report
states:
"This section corresponds to section 22(a) of the 1939 Code.
While the language in existing section 22(a) has been simplified,
the all-inclusive nature of statutory gross income has not been
affected thereby. Section 61(a) is as broad in scope as section
22(a)."
"Section 61(a) provides that gross income includes 'all income
from whatever source derived.' This definition is based upon the
16th Amendment, and the word 'income' is used in its constitutional
sense."
H.R.Rep.No.1337,
supra, note 10 at A18
A virtually identical statement appears in S.Rep.No.1622,
supra, note 10 at
168.