Richard Schmalbeck: Gifts and the Income Tax: An Enduring Puzzle

Law & Contemporary Problems Conference 2009:
Turning Points in the History of the Federal Income Tax November 6, 2009

"This article explores the intellectual history of the income tax treatment of gifts. Although our first two income taxes--the Civil War tax and the ill-fated income tax of 1894--did consider money (or the value of property) received by gift to be income, Congress abandoned that approach when it re-enacted the income tax in 1913, following ratification of the 16th amendment. But the basis for that decision is unclear, and the rules are at odds with the early development of income tax theory running from Seligman and Haig to Henry Simons. The article explains the tension between theory and enacted law, and provides a model for gift treatment that links the doctrines governing the treatment of the donor with those governing the treatment of the donee. It also explores some of the later developments involving ancillary doctrines governing the treatment of gifts of appreciated property, either to charitable or noncharitable donees."