## Facts

- Kenneth W. Daehler was a real-estate salesman employed by Anaconda Properties, Inc., a registered broker; his compensation included a percentage (50–75%) of commissions Anaconda earned on sales he made.
- In 1952, Daehler sought to buy ocean-front property for his own account and offered $52,500 for ten lots using Anaconda’s offer form, tendering $5,250 as earnest money to Anaconda.
- Daehler coordinated with Anaconda’s sales manager, who presented the offer to the listing broker as coming from a “customer” willing to pay cash.
- The area’s customary commission for vacant property was 10%; the seller would have accepted $47,250 net if not obligated to pay a broker’s commission, and the sale at $52,500 produced that net after paying the 10% commission.
- After closing, the listing broker and Anaconda split the 10% commission; Anaconda then paid Daehler $1,837.50 (70% of Anaconda’s $2,625 share), calculated the same way as if he had sold to an unrelated buyer.
- Anaconda did not include the $1,837.50 on Daehler’s W-2, and the Daehlers did not report it on their 1952 return.
- The Commissioner treated the $1,837.50 as taxable commission income and determined a deficiency; the Tax Court held it was a reduction of the property’s purchase price rather than income.

## Issues

1. Whether an employer-paid commission to a real-estate salesman arising from a transaction in which the salesman purchases the property himself is taxable gross income as compensation for services under I.R.C. § 22(a) (1939).
2. Whether such a payment may be treated as a non-taxable reduction in the purchase price of the property.

## Decision

- The Fifth Circuit reversed the Tax Court.
- The court held the $1,837.50 payment was taxable income as commission/compensation for services under § 22(a), not a purchase-price reduction.
- The court reasoned that the commission was earned and paid under customary brokerage practice, then distributed to Daehler under his standard compensation arrangement with Anaconda, notwithstanding that he was the buyer.

## Legal Principles

- Gross income under I.R.C. § 22(a) includes commissions and other compensation for personal services “of whatever kind and in whatever form paid.”
- A commission paid by an employer to its employee for brokerage services retains its character as taxable compensation even if the employee is also the purchaser in the underlying transaction.
- Treating such compensation as a price adjustment is improper where the transaction is structured and executed as a full-commission sale with a separate, employer-to-employee commission payment.

## Conclusion

The court held that a real-estate salesman who receives a commission from his broker-employer in connection with his own purchase must include the commission in gross income as compensation for services; it cannot be recharacterized as a reduction in the property’s purchase price.


Commissioner v. Daehler, 281 F.2d 823 (5th Cir. 1960)