## Facts

- The Commissioner of Internal Revenue assessed tax deficiencies against two taxpayers who excluded punitive or exemplary damages from gross income under § 22(a) of the Internal Revenue Code of 1939.
- Glenshaw Glass Co. settled litigation involving fraud and federal antitrust claims and received about $800,000; $324,529.94 was allocated to punitive damages for fraud and antitrust violations.
- Glenshaw Glass did not report the $324,529.94 punitive portion as income; the Commissioner treated it (less allowable legal fees) as taxable income.
- William Goldman Theatres, Inc. obtained a treble-damages antitrust judgment of $375,000, consisting of $125,000 in actual damages and $250,000 representing the punitive two-thirds portion.
- Goldman reported only the $125,000 compensatory portion and excluded the $250,000 punitive portion; the Commissioner treated the treble-damages recovery (minus appropriate costs) as taxable income.
- The Tax Court ruled for the taxpayers, and the Third Circuit affirmed; the Supreme Court granted certiorari due to recurring disputes and conflicting lower-court interpretations.

## Issues

1. Whether exemplary damages for fraud and the punitive two-thirds portion of a treble-damages antitrust recovery constitute “gross income” taxable under § 22(a) of the Internal Revenue Code of 1939.
2. Whether the punitive or penal purpose of such awards prevents their inclusion in gross income.
3. Whether prior administrative decisions, congressional reenactment, or later codification history support excluding punitive damages from gross income.

## Decision

- The Supreme Court reversed the Third Circuit and held for the Commissioner.
- Punitive and exemplary damages must be reported as “gross income” under § 22(a) of the 1939 Code.
- The Court rejected limiting “income” to the formulation associated with Eisner v. Macomber and adopted a broader standard.
- The Court held that the punitive character of the payments does not change their taxability to the recipient.
- The Court found no applicable statutory exclusion (including the gift exclusion) for punitive or exemplary damages.

## Legal Principles

- “Gross income” under § 22(a) is construed broadly to reach “gains or profits and income derived from any source whatever,” taxing all gains unless specifically exempted.
- Taxable income includes “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
- Payments imposed to punish wrongdoers may still be taxable to recipients; the penal purpose does not remove the recipient’s realized gain from gross income.
- Punitive damages are not “gifts” and are not excluded absent a specific statutory exemption.
- Reenactment of general gross-income language and later stylistic revisions to the gross-income provision do not narrow its scope without clear legislative direction.

## Conclusion

The Court held that punitive and exemplary damages, including the punitive portion of treble antitrust damages, are taxable gross income because they are clearly realized increases in wealth over which the taxpayer has dominion, and no statutory exclusion applies.


Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)