## Facts

- Byrnece S. Green and Maxwell E. Richmond began a romantic relationship in 1962 and became engaged, but Richmond later asked to avoid marriage and promised to leave Green “everything” at his death if she stayed with him.
- Green maintained a separate residence but provided extensive personal support and assistance, including health and appointment management and accompanying Richmond on business and social functions.
- Richmond died with a will leaving an estate of about $7 million to his siblings, not to Green.
- Green sued the estate in Massachusetts state court seeking recovery for the value of services she provided in reliance on Richmond’s promises.
- A jury found the estate liable to Green on a quantum meruit theory; the Massachusetts Supreme Judicial Court affirmed liability and remanded on damages.
- Green and the estate settled for $900,000 payable over two years; Green received $139,311.61 in 1977 and $760,688.39 in 1978.
- Green did not report those settlement receipts as gross income on her federal returns.
- The IRS issued a notice of deficiency asserting the settlement payments were taxable income for 1977 and 1978; Green petitioned the Tax Court.

## Issues

1. Whether settlement payments received in compromise of a quantum meruit claim against a decedent’s estate are includible in gross income under I.R.C. § 61 or excludable as a gift or bequest (or otherwise non-taxable).
2. If the settlement payments are taxable, whether attorneys’ fees incurred to obtain the settlement are deductible under I.R.C. § 212 as expenses for the production or collection of income.

## Decision

- The Tax Court held the settlement payments were taxable gross income under § 61 as compensation for services.
- The Tax Court rejected characterization of the payments as an excludable gift or bequest.
- The Tax Court allowed a deduction for attorneys’ fees under § 212 to the extent incurred to produce or collect the settlement proceeds.
- The Tax Court sustained the deficiencies subject to adjustment for the allowable § 212 deductions.

## Legal Principles

- Gross income under I.R.C. § 61 includes compensation for services and is construed broadly.
- Tax characterization of a settlement follows the “origin of the claim”; the nature of the underlying right being enforced controls, not the taxpayer’s description of the relationship.
- A recovery grounded in quantum meruit represents payment for the reasonable value of services rendered and is generally taxable as compensation.
- Exclusion as a gift or bequest depends on donative or testamentary character; a payment substituting for a compensatory claim is not excludable on that basis.
- Under I.R.C. § 212, ordinary and necessary expenses paid for the production or collection of income are deductible; litigation costs incurred to obtain taxable settlement proceeds may qualify.

## Conclusion

The Tax Court treated Green’s settlement as compensation because it arose from a quantum meruit claim for the value of services, making the payments includible in gross income under § 61, while permitting a § 212 deduction for attorneys’ fees incurred to secure that taxable recovery.


Green v. Commissioner, T.C. Memo. 1987-503 (1987)