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December 23, 1959

Mary M. PACKARD, Plaintiff,
UNITED STATES of America, Defendant

The opinion of the court was delivered by: LEVET

This action is a suit for refund of income taxes assessed and collected from plaintiff for the years 1953, 1954 and 1955, together with interest thereon, in the aggregate amount of $ 9,020.91.

The plaintiff has moved for an order pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A., granting a summary judgment and the defendant has filed a cross-motion seeking the same relief in its favor.

 The facts are not in dispute and are as follows:

 1. From October 5, 1929 until his death on January 25, 1953, Arthur W. Packard, plaintiff's husband, was employed by John D. Rockefeller, Jr. as secretary of Mr. Rockefeller's Philanthropic Committee. The decedent's duties consisted of considering and making recommendations concerning various appeals directed to Mr. Rockefeller for philanthropic assistance.

 2. On January 30, 1953, Mr. Rockefeller wrote to the plaintiff-widow, stating: 'In recognition of your husband's long and valued relationship to our office and in line with an office custom, I am glad to advise you that beginning with February 1st of this year the salary which Mr. Packard was receiving at the time of his death, $ 20,000., will be paid to you for a period of two years.' (Exhibit A of plaintiff's affidavit in support of her motion for summary judgment.) 3. The payments were made as follows: (a) For the months of February through December, 1953 $18,333.30 (b) For the twelve months of 1954 20,000.00 (c) For January, 1955 1,666.67 Total $39,999.97 4. In her income tax returns for the years in question, the plaintiff reported these sums as income and paid the tax upon them in the following amounts: 1953 $3,316.66 1954 5,523.28 1955 180.97 Total $9,020.91

 5. On or about March 11, 1957, plaintiff filed with the District Director of Internal Revenue claims for refund for the years in question, alleging that the payments received from Mr. Rockefeller had been erroneously reported as income by her and asserting that these payments in fact represented non-taxable gifts made to her by her deceased husband's employer. These claims for refund were rejected on or about January 29, 1958 and the instant suit was commenced.

 6. John D. Rockefeller, Jr. did not take any deductions in 1953, 1954 or 1955 on his personal or business income tax returns with respect to his payments to the plaintiff. Since Mr. Packard was engaged solely in connection with Mr. Rockefeller's charitable activities, Mr. Rockefeller never took a deduction for any salary ever paid to Mr. Packard.

 7. An inspection of John D. Rockefeller, Jr.'s Gift Tax Returns for the years in question indicates that he did not report any portion of the payments to the plaintiff as gifts in those years.

 8. In an interrogatory propounded pursuant to Rule 31 of the Federal Rules of Civil Procedure, Mr. Rockefeller was asked whether he 'intended such payments to be a gift to Mary M. Packard.' (Question 6(d) of defendant's interrogatories, filed on July 1, 1959.) He replied: 'Not as a gift but in recognition of the long and faithful service rendered to me by Mr. Packard.' (Answer 6(d) to interrogatories, filed on July 16, 1959.)

 9. Questioned in interrogatory No. 8 about his statement in the letter of January 30, 1953, that the payments would be made 'in line with an office custom,' Mr. Rockefeller stated: 'There was an office custom, voluntary in nature and subject to change at any time, to pay the salaries of deceased employees to their widows for specified periods. * * * The custom was discretionary, but up until the time of Mr. Packard's death had been followed uniformly in every case.' (Answer 8.)

 10. Mr. Rockefeller was not obligated to make the payments by reason of any pension or other plan, contract or arrangement with the deceased employee, Mr. Arthur W. Packard, or the plaintiff or any other person which would have created an express legal right for plaintiff to receive such payments. (See sworn transcripts of depositions of Mary M. Packard, Robert W. Gumbel and Philip F. Keebler, Exhibit B of plaintiff's motion for summary judgment.)

 The question presented is whether the payments received by the plaintiff constituted income to her or a gift.

 Since the plaintiff's husband died before August 16, 1954, the effective date of the Internal Revenue Code of 1954, the Internal Revenue Code of 1939 is applicable. The applicable portion of Section 22 of the 1939 Code provides as follows:

 '(a) General definition. 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal services * * * of whatever kind and in whatever form paid * * *

 '(b) Exclusions from gross income. The following items shall not be included in gross income and shall be exempt from taxation under this chapter:

 '(3) Gifts, bequests, devises, and inheritances. The value of property acquired by gift, bequest, * * * or inheritance * * *.' 26 U.S.C.A. (I.R.C.1939) ยงยง 22(a), 22(b)(3).

 The Supreme Court has recognized that a 'narrow line' exists between taxable bonuses and tax-free gifts. Helvering v. American Dental Co., 1943, 318 U.S. 322, 327, 63 S. Ct. 577, 87 L. Ed. 785. The unsettled nature of this area is shown by the decision of the Second Circuit Court of Appeals in Stanton v. United States, 1959, 268 F.2d 727, and that of the Court of Appeals for the Fourth Circuit in Bounds v. United States, 1958, 262 F.2d 876. Certiorari has recently been granted in the Stanton case. 1959, 82 S. Ct. 294. In fact, the Commissioner's position on this particular question has changed on several occasions *fn1" and in the face of a number of decisions adverse to the Internal Revenue Service on this point an Information Release was promulgated by the Commissioner announcing that the Internal Revenue Service would no longer litigate under the Internal Revenue Code of 1939 cases involving voluntary payments to widows by their deceased husband's employers 'unless there is clear evidence that they were intended as compensation for services, or where the payments may be considered as dividends.' *fn2"

 Payments made by an employer to a beneficiary of an employee made pursuant to an enforceable contract between employer and employee are not gifts even though the beneficiary has done nothing to earn them. Flarsheim v. United States, 8 Cir., 1946, 156 F.2d 105; Varnedoe v. Allen, 5 Cir., 1946, 158 F.2d 467, certiorari denied 330 U.S. 821, 67 S. Ct. 771, 91 L. Ed. 1272; Rodner v. United States, D.C.S.D.N.Y.1957, 149 F.Supp. 233. In addition, a voluntary payment can also be compensation. Old Colony Trust Co. v. ...

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