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Wolder v. Commissioner - 493 F.2d 608 (2d Cir. 1974)

Rule:

The true test of whether income is exempt from taxation under I.R.C. § 102 is whether in actuality the gift is a bona fide gift or simply a method for paying compensation. This question is resolved by an examination of the intent of the parties, the reasons for the transfer, and the parties' performance in accordance with their intentions--what the basic reason for the donor's conduct was in fact--the dominant reason that explains his action in making the transfer.

Facts:

Pursuant to a written agreement, appellant taxpayer, who was an attorney, provided legal services at no charge to his client , who bequeathed her stock to appellant upon her death. Appellant received the stock and cash one year after the client's death, when its value had considerably increased. The Tax Court held that the stock and cash were taxable income, under I.R.C. § 61, and were not exempt as a bequest, under I.R.C. § 102, and that appellant constructively received the stock and cash in the year of the client's death rather than the year in which he actually received it. Appellant and appellee Commissioner of Internal Revenue (United States) both sought review.

Issue:

Was the client's bequest of stock and cash by to an attorney, who provided legal services at no charge, exempt from taxation?

Answer:

No.

Conclusion:

The United States Court of Appeals held that the bequest of stock and cash by appellant taxpayer's client to him was not exempt from taxation, as the bequest was not a gift but a postponed payment for uncharged legal services.

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