U.S.

Supreme Court
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)
Commissioner v. Glenshaw Glass Co.
No. 199
Argued February 28, 1955
Decided March 28, 1955*
348 U.S. 426
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Syllabus
Money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble
damage antitrust recovery must be reported by a taxpayer as "gross income" under 22(a) of
the Internal Revenue Code of 1939. Pp. 348 U. S. 427-433.
(a) In determining what constitutes "gross income" as defined in 22(a), effect must be given to
the catch-all language "gains or profits and income derived from any source whatever." Pp. 348
U. S. 429-430.
(b) Eisner v. Macomber, 252 U. S. 189, distinguished. Pp. 348 U. S. 430-431.
(c) The mere fact that such payments are extracted from the wrongdoers as punishment for
unlawful conduct cannot detract from their character as taxable income to the recipients. P. 348
U. S. 431.
(d) A different result is not required by the fact that 22 (a) was reenacted without change after
the Board of Tax Appeals had held punitive damages nontaxable in Highland Farms Corp., 42
B.T.A. 1314. Pp. 348 U. S. 431-432.
(e) The legislative history of the Internal Revenue Code of 1954 does not require a different
result. The definition of gross income was simplified, but no effect upon its present broad scope
was intended. P. 348 U. S. 432.
(f) Punitive damages cannot be classified as gifts, nor do they come under any other exemption
in the Code. P. 348 U. S. 432.
211 F.2d 928 reversed.
Page 348 U. S. 427
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
This litigation involves two cases with independent factual backgrounds, yet presenting the
identical issue. The two cases were consolidated for argument before the Court of Appeals for
the Third Circuit, and were heard en banc. The common question is whether money received as
exemplary damages for fraud or as the punitive two-thirds portion of a treble damage antitrust
recovery must be reported by a taxpayer as gross income under 22(a) of the Internal Revenue
Code of 1939. [Footnote 1] In a single opinion, 211 F.2d 928, the Court of Appeals affirmed the
Tax Court's separate rulings in favor of the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the
frequent recurrence of the question and differing interpretations by the lower courts of this
Court's decisions bearing upon the problem, we granted the Commissioner of Internal Revenue's
ensuing petition for certiorari. 348 U.S. 813.
The facts of the cases were largely stipulated, and are not in dispute. So far as pertinent, they
are as follows:
Commissioner v. Glenshaw Glass Co. -- The Glenshaw Glass Company, a Pennsylvania
corporation, manufactures glass bottles and containers. It was engaged in protracted litigation
with the Hartford-Empire Company, which manufactures machinery of a character used by
Glenshaw. Among the claims advanced by Glenshaw
Page 348 U. S. 428
were demands for exemplary damages for fraud [Footnote 2] and treble damages for injury to its
business by reason of Hartford's violation of the federal antitrust laws. [Footnote 3] In December,
1947, the parties concluded a settlement of all pending litigation by which Hartford paid
Glenshaw approximately $800,000. Through a method of allocation which was approved by the
Tax Court, 18 T.C. 860, 870-872, and which is no longer in issue, it was ultimately determined
that, of the total settlement, $324,529.94 represented payment of punitive damages for fraud
and antitrust violations. Glenshaw did not report this portion of the settlement as income for the
tax year involved. The Commissioner determined a deficiency, claiming as taxable the entire
sum less only deductible legal fees. As previously noted, the Tax Court and the Court of Appeals
upheld the taxpayer.
Commissioner v. William Goldman Theatres, Inc. -- William Goldman Theatres, Inc., a Delaware
corporation operating motion picture houses in Pennsylvania, sued Loew's, Inc., alleging a
violation of the federal antitrust laws and seeking treble damages. After a holding that a violation
had occurred, William Goldman Theatres, Inc. v. Loew's Inc., 150 F.2d 738, the case was
remanded to the trial court for a determination of damages. It was found that Goldman had
suffered a loss of profits equal to $125,000, and was entitled to treble damages in the sum of
$375,000. William Goldman Theatres, Inc. v. Loew's, Inc., 69 F.Supp. 103, aff'd 164 F.2d
1021, cert. denied, 334 U.S. 811. Goldman reported only $125,000 of the recovery as gross
income, and claimed that the $250,000
Page 348 U. S. 429
balance constituted punitive damages, and, as such, was not taxable. The Tax Court agreed, 19
T.C. 637, and the Court of Appeals, hearing this with the Glenshaw case, affirmed. 211 F.2d
928.
It is conceded by the respondents that there is no constitutional barrier to the imposition of a tax
on punitive damages. Our question is one of statutory construction: are these payments
comprehended by 22(a)?
The sweeping scope of the controverted statute is readily apparent:
"SEC. 22. GROSS INCOME."
"(a) GENERAL DEFINITION. 'Gross income' includes gains, profits, and income derived from
salaries, wages, or compensation for personal service . . . of whatever kind and in whatever form
paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in
property, whether real or personal, growing out of the ownership or use of or interest in such
property; also from interest, rent, dividends, securities, or the transaction of any business carried
on for gain or profit, or gains or profits and income derived from any source whatever. . . ."
(Emphasis added.) [Footnote 4]
This Court has frequently stated that this language was used by Congress to exert in this field
"the full measure of its taxing power." Helvering v. Clifford, 309 U. S. 331, 309 U. S.
334; Helvering v. Midland Mutual Life Ins. Co., 300 U. S. 216, 300 U. S. 223; Douglas v.
Willcuts, 296 U. S. 1, 296 U. S. 9; Irwin v. Gavit, 268 U. S. 161, 268 U. S. 166. Respondents
contend that punitive damages, characterized as "windfalls" flowing from the culpable conduct of
third parties, are not within the scope of the section. But Congress applied no limitations as to
the source of taxable receipts, nor restrictive
Page 348 U. S. 430
labels as to their nature. And the Court has given a liberal construction to this broad phraseology
in recognition of the intention of Congress to tax all gains except those specifically
exempted. Commissioner v. Jacobson, 336 U. S. 28, 336 U. S. 49; Helvering v. Stockholms
Enskilda Bank, 293 U. S. 84, 293 U. S. 87-91. Thus, the fortuitous gain accruing to a lessor by
reason of the forfeiture of a lessee's improvements on the rented property was taxed
in Helvering v. Bruun, 309 U. S. 461.Cf. Robertson v. United States, 343 U. S. 711; Rutkin v.
United States, 343 U. S. 130; United States v. Kirby Lumber Co., 284 U. S. 1. Such decisions
demonstrate that we cannot but ascribe content to the catchall provision of 22(a), "gains or
profits and income derived from any source whatever." The importance of that phrase has been
to frequently recognized since its first appearance in the Revenue Act of 1913 [Footnote 5] to
say now that it adds nothing to the meaning of "gross income."
Nor can we accept respondents' contention that a narrower reading of 22(a) is required by the
Court's characterization of income in Eisner v. Macomber, 252 U. S. 189, 252 U. S. 207, as "the
gain derived from capital, from labor, or from both combined." [Footnote 6] The Court was there
endeavoring to determine whether the distribution of a corporate stock dividend constituted a
realized gain to the shareholder, or changed "only the form, not the essence," of
Page 348 U. S. 431
his capital investment. Id. at 252 U. S. 210. It was held that the taxpayer had "received nothing
out of the company's assets for his separate use and benefit." Id. at 252 U. S. 211. The
distribution, therefore, was held not a taxable event. In that context -- distinguishing gain from
capital -- the definition served a useful purpose. But it was not meant to provide a touchstone to
all future gross income questions. Helvering v. Bruun, supra, at 309 U. S. 468-469; United
States v. Kirby Lumber Co., supra, at 284 U. S. 3.
Here, we have instances of undeniable accessions to wealth, clearly realized, and over which
the taxpayers have complete dominion. The mere fact that the payments were extracted from
the wrongdoers as punishment for unlawful conduct cannot detract from their character as
taxable income to the recipients. Respondents concede, as they must, that the recoveries are
taxable to the extent that they compensate for damages actually incurred. It would be an
anomaly that could not be justified in the absence of clear congressional intent to say that a
recovery for actual damages is taxable, but not the additional amount extracted as punishment
for the same conduct which caused the injury. And we find no such evidence of intent to exempt
these payments.
It is urged that reenactment of 22(a) without change since the Board of Tax Appeals held
punitive damages nontaxable in Highland Farms Corp., 42 B.T.A. 1314, indicates congressional
satisfaction with that holding. Reenactment -- particularly without the slightest affirmative
indication that Congress ever had the Highland Farms decision before it -- is an unreliable
indicium, at best. Helvering v. Wilshire Oil Co., 308 U. S. 90, 308 U. S. 100-101; Koshland v.
Helvering, 298 U. S. 441, 298 U. S. 447. Moreover, the Commissioner promptly published his
nonacquiescence in this portion of the Highland Farms holding, [Footnote 7] and has,
Page 348 U. S. 432
before and since, consistently maintained the position that these receipts are taxable. [Footnote
8] It therefore cannot be said with certitude that Congress intended to carve an exception out of
22(a)'s pervasive coverage. Nor does the 1954 Code's [Footnote 9] legislative history, with its
reiteration of the proposition that statutory gross income is "all-inclusive," [Footnote 10] give
support to respondents' position. The definition of gross income has been simplified, but no
effect upon its present broad scope was intended. [Footnote 11] Certainly punitive damages
cannot reasonably be classified as gifts, cf. Commissioner v. Jacobson, 336 U. S. 28, 336 U. S.
47-52, nor do they come under any other exemption provision in the Code. We would do
violence to the plain meaning of the statute and restrict a clear legislative attempt to
Page 348 U. S. 433
bring the taxing power to bear upon all receipts constitutionally taxable were we to say that the
payments in question here are not gross income. See Helvering v. Midland Mutual Life Ins. Co.,
supra, at 300 U. S. 223.
Reversed.
MR. JUSTICE DOUGLAS dissents.
MR. JUSTICE HARLAN took no part in the consideration or decision of this case.
* Together with Commissioner of Internal Revenue v. William Goldman Theaters, Inc., which
was a separate case decided by the Court of Appeals in the same opinion.
[Footnote 1]
53 Stat. 9, 53 Stat. 574, 26 U.S.C. 22(a).
[Footnote 2]
For the bases of Glenshaw's claim for damages from fraud, see Shawkee Manufacturing Co. v.
Hartford-Empire Co., 322 U. S. 271; Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U. S.
238.
[Footnote 3]
See Hartford-Empire Co. v. United States, 323 U. S. 386, 324 U. S. 324 U.S. 570.
[Footnote 4]
See note 1 supra.
[Footnote 5]
38 Stat. 114, 167.
[Footnote 6]
The phrase was derived from Stratton's Independence, Ltd. v. Howbert, 231 U. S. 399, 231 U. S.
415, and Doyle v. Mitchell Bros. Co., 247 U. S. 179, 247 U. S. 185, two cases construing the
Revenue Act of 1909, 36 Stat. 11, 112. Both taxpayers were "wasting asset" corporations, one
being engaged in mining, the other in lumbering operations. The definition was applied by the
Court to demonstrate a distinction between a return on capital and "a mere conversion of capital
assets." Doyle v. Mitchell Bros. Co., supra, at 247 U. S. 184. The question raised by the instant
case is clearly distinguishable.
[Footnote 7]
1941-1 Cum.Bull, 16.
[Footnote 8]
The long history of departmental rulings holding personal injury recoveries nontaxable on the
theory that they roughly correspond to a return of capital cannot support exemption of punitive
damages following injury to property. See 2 Cum.Bull. 71; I-1 Cum.Bull. 92, 93; VII-2 Cum.Bull.
123; 1954-1 Cum.Bull. 179, 180. Damages for personal injury are, by definition, compensatory
only. Punitive damages, on the other hand, cannot be considered a restoration of capital for
taxation purposes.
[Footnote 9]
68A Stat. 3 et seq. Section 61(a) of the Internal Revenue Code of 1954, 68A Stat. 17, is the
successor to 22(a) of the 1939 Code.
[Footnote 10]
H.R.Rep.No.1337, 83d Cong., 2d Sess. A18; S.Rep.No.1622, 83d Cong., 2d Sess. 168.
[Footnote 11]
In discussing 61(a) of the 1954 Code, the House Report states:
"This section corresponds to section 22(a) of the 1939 Code. While the language in existing
section 22(a) has been simplified, the all-inclusive nature of statutory gross income has not been
affected thereby. Section 61(a) is as broad in scope as section 22(a)."
"Section 61(a) provides that gross income includes 'all income from whatever source derived.'
This definition is based upon the 16th Amendment, and the word 'income' is used in its
constitutional sense."
H.R.Rep.No.1337, supra, note 10 at A18
A virtually identical statement appears in S.Rep.No.1622, supra, note 10 at 168.