Facts
- For the 1941 tax year, Pauline C. Washburn received $900 after her telephone number was randomly selected from a directory by the “Pot O’Gold” radio program sponsored by the Lewis Howe Company (makers of Tums).
- Washburn’s only act was answering her home telephone when the program called.
- A messenger delivered the $900 within about thirty minutes, accompanied by a telegram describing the payment as an “outright cash gift” from the sponsor.
- Washburn had not entered a contest, purchased any product, submitted any materials, or taken any steps to become eligible.
- The sponsor later requested that Washburn appear on the program; she declined and had no subsequent relationship with the sponsor.
- The Commissioner determined a deficiency, treating the $900 as taxable income; Washburn petitioned the Tax Court, asserting the payment was a nontaxable gift.
Issues
- Whether a $900 payment from a sponsor’s radio giveaway, made after random selection and without any recipient consideration or obligation, is includible in gross income or excludable as a gift.
Decision
- The Tax Court held for Washburn.
- The court concluded the $900 was a nontaxable gift rather than taxable income.
- The deficiency attributable to treating the $900 as income was disallowed.
Legal Principles
- Whether a transfer is a “gift” for federal income tax purposes turns primarily on the transferor’s intent, evaluated from the surrounding facts and circumstances rather than labels alone.
- A transfer is more likely a gift where the recipient provides no consideration, performs no services, and undertakes no obligations in exchange for the payment.
- Payments resembling prizes, compensation, or other quid pro quo transfers are generally income; a randomly bestowed payment without contest participation or wager-like behavior may be treated as donative.
Conclusion
The Tax Court treated the “Pot O’Gold” radio payment as an excludable gift because it was made gratuitously after random selection, without recipient effort, consideration, or any obligation to perform services or provide promotional value to the sponsor.