Voluntary Payments to Widows of Corporate Executives: Gifts or Income?

The solicitude of hardhearted corporations for the widows of corporate executives has given rise to an abundance of cases involving the question whether payments to these widows constitute gifts or income. In the cases to be considered in this comment, payments are made by the corporation to the decedent’s widow on a purely voluntary basis. In the typical situation, the board of directors adopts a resolution eulogizing the decedent and authorizing payments to his widow in recognition of his long and faithful service. In most cases, these payments are measured by the decedent’s salary and continue for periods ranging from a few months to a few years. The Commissioner of Internal Revenue relies upon section 61(a) and claims that the widow’s receipts constitute taxable income. The widow insists that she has received a gift which may be excluded from gross income under section 102(a).

Prior to the Supreme Court’s decision in Commissioner v. Duberstein, the Commissioner met with little success in his attempts to tax these payments. Since Duberstein, however, the courts have widely disagreed. By tracing the development of the widow payment phase of the gift-income controversy and by delineating possible solutions to the problems which presently exist, it is hoped that guidelines will be provided for remedial action by either Congress or the courts.