## Facts

- Douglas and Joan Goldsmith brought a federal tax refund suit challenging additional income tax assessed for 1969 and 1970.
- Dr. Goldsmith, a hospital anesthesiologist, entered a 1969 deferred-compensation agreement with his hospital employer.
- The agreement promised retirement payments beginning in 1996 if he remained employed, plus death benefits payable to his children and continued benefits upon permanent disability before age 60.
- The hospital reserved discretion whether to fund its obligation, but the parties understood the hospital would finance the arrangement through a life-insurance endowment policy.
- The hospital purchased a life-insurance endowment policy on Dr. Goldsmith’s life with monthly premiums funded from amounts treated as withheld from his compensation.
- The IRS included the withheld amounts in the Goldsmiths’ 1969 and 1970 gross income under constructive receipt and, alternatively, treated the arrangement as conferring a current taxable economic benefit.
- The parties submitted the case on a written record with substantially undisputed facts; the Court of Claims adopted the trial judge’s recommended decision and entered judgment for the taxpayers, with the refund amount to be computed later.

## Issues

1. Whether amounts withheld from Dr. Goldsmith’s compensation for 1969 and 1970 under the deferred-compensation agreement were taxable in those years under the constructive-receipt doctrine.
2. Whether the economic-benefit doctrine required current inclusion in income of (a) the employer’s deferred-payment promise and/or (b) the actuarially determinable value of embedded death and disability protection.

## Decision

- The court held the withheld compensation was not constructively received in 1969 or 1970.
- The court held the deferred retirement-pay promise did not create current taxable income under the economic-benefit doctrine.
- The court held the agreement’s insurance-related features (death and disability protection) conferred a present economic benefit and were currently taxable to the extent actuarially measurable.
- Judgment was entered for the Goldsmiths, with further proceedings to compute the refund reflecting inclusion of the taxable insurance-feature value.

## Legal Principles

- Constructive receipt requires that income be made available to the taxpayer without substantial restriction; a bargained-for deferral under an unsecured employer promise, without a right to demand current cash, is not constructively received.
- An employer’s purchase of insurance to support a deferred-compensation obligation does not, by itself, make deferred amounts currently taxable when the arrangement remains an unfunded, unsecured promise subject to the employer’s general creditors.
- Under the economic-benefit doctrine, a taxpayer must include in income a present, measurable benefit that is currently enjoyed, even if no cash is received.
- A deferred-compensation arrangement may be bifurcated: deferred salary can remain non-taxable until paid, while separable insurance-type protection providing current coverage may be taxable currently based on actuarial value.

## Conclusion

The court treated the plan as an unfunded deferred-compensation arrangement that did not trigger constructive receipt or current taxation of the deferred retirement payments, but required current income inclusion for the actuarially determinable value of death and disability insurance protection provided during the years at issue.


Goldsmith v. United States, 586 F.2d 810 (Ct. Cl. 1978)