Olk v. United States
Encyclopedia
Olk v. United States, 536 F.2d 876, 76-2 U.S. Tax Cas. (CCH) paragr. 9484 (9th Cir.), cert. denied
, 429 U.S. 920, 97 S. Ct. 317 (1976), was a case decided before the United States Court of Appeals for the Ninth Circuit
which dealt with the question of whether tips (or “tokes”) to casino dealers were taxable as income
to the dealers under Internal Revenue Code section 61
or, alternatively, nontaxable gifts under Internal Revenue Code section 102(a).
was employed as a craps
dealer in two Las Vegas
casino
s. Dealers would at times receive money from the players as "tokes," which are similar to tips. The major difference between tips and "tokes" is that the casino workers do not perform specific services for customers. In fact, their contract
s prohibited any such services other than the task of running the various games. This money would be collected and split evenly among the four dealers at the craps table at the end of each shift. This particular plaintiff received an average of $30 per day combined from his two casino jobs.
The district court
in this case made two “findings of fact” that were relevant to the Court of Appeals decision. The first was that the tips were the result of “impulsive generosity” on the part of the players, and the second is that the tips were the result of “detached and disinterested generosity.” These findings led the district court to find that the tips were gifts and not income for tax purposes under the test established in Commissioner v. Duberstein
. This is relevant because gifts are not included in gross income
for federal tax purposes.
that would not be reversed because it was not clearly erroneous. The determination that such dominant reason requires tax treatment as a gift is one of law, to which the appeals court does not owe deference.
The Court decided that such payments by the players in casinos are not motivated by “detached or disinterested generosity
,” but instead was an “involved and intensely interested act” motivated by a hope that such a “tribute to the gods of fortune” would be “returned bounteously.” The Court enumerated a number of factors to consider in making the determination that the tips should be reasonably regarded as compensation
for services, including:
The Court announced a generalization that:
“receipts by taxpayers engaged in rendering services contributed by those with whom the taxpayers have some personal or functional contact in the course of the performance of the services are taxable income
when in conformity with the practices of the area and easily valued.”
Clearly, tips to dealers fit this description. As such, the tips should be included in gross income
.
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
, 429 U.S. 920, 97 S. Ct. 317 (1976), was a case decided before the United States Court of Appeals for the Ninth Circuit
United States Court of Appeals for the Ninth Circuit
The United States Court of Appeals for the Ninth Circuit is a U.S. federal court with appellate jurisdiction over the district courts in the following districts:* District of Alaska* District of Arizona...
which dealt with the question of whether tips (or “tokes”) to casino dealers were taxable as income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
to the dealers under Internal Revenue Code section 61
Internal Revenue Code section 61
Section 61 of the Internal Revenue Code defines "gross income," the starting point for determining which items of income are taxable for federal income tax purposes in the United States. Section 61 states that "except as otherwise provided in this subtitle gross income means all income from...
or, alternatively, nontaxable gifts under Internal Revenue Code section 102(a).
Facts
In 1971, the plaintiffPlaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
was employed as a craps
Craps
Craps is a dice game in which players place wagers on the outcome of the roll, or a series of rolls, of a pair of dice. Players may wager money against each other or a bank...
dealer in two Las Vegas
Las Vegas Strip
The Las Vegas Strip is an approximately stretch of Las Vegas Boulevard in Clark County, Nevada; adjacent to, but outside the city limits of Las Vegas proper. The Strip lies within the unincorporated townships of Paradise and Winchester...
casino
Casino
In modern English, a casino is a facility which houses and accommodates certain types of gambling activities. Casinos are most commonly built near or combined with hotels, restaurants, retail shopping, cruise ships or other tourist attractions...
s. Dealers would at times receive money from the players as "tokes," which are similar to tips. The major difference between tips and "tokes" is that the casino workers do not perform specific services for customers. In fact, their contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s prohibited any such services other than the task of running the various games. This money would be collected and split evenly among the four dealers at the craps table at the end of each shift. This particular plaintiff received an average of $30 per day combined from his two casino jobs.
The district court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
in this case made two “findings of fact” that were relevant to the Court of Appeals decision. The first was that the tips were the result of “impulsive generosity” on the part of the players, and the second is that the tips were the result of “detached and disinterested generosity.” These findings led the district court to find that the tips were gifts and not income for tax purposes under the test established in Commissioner v. Duberstein
Commissioner v. Duberstein
Commissioner v. Duberstein, , was a United States Supreme Court case dealing with the exclusion of "the value of property acquired by gift" from the gross income of an income taxpayer....
. This is relevant because gifts are not included in gross income
Gross income
Gross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...
for federal tax purposes.
Issue
The issue in this case was whether the trial court erred in such “findings of fact” that led to the determination of holding that the tips to dealers were gifts and not income for federal tax purposes.Holding
The Court of Appeals for the Ninth Circuit reversed the trial court, holding that the tips did in fact constitute income, and the district court erred in making findings to the contrary.Reasoning
The Court began by stating that the conclusion that the tips were made out of “detached and disinterested generosity” was a conclusion of law, not a finding of fact, and as such the Court did not need to give any deference to the trial court’s finding on that point. The court made a distinction between the lower court's determination of law and determination of fact. The determination of the dominant reason that explains the player's action in making the transfer was a matter of law for the lower courtLower court
A lower court is a court from which an appeal may be taken. In relation to an appeal from one court to another, the lower court is the court whose decision is being reviewed, which may be the original trial court or an appellate court lower in rank than the superior court which is hearing the...
that would not be reversed because it was not clearly erroneous. The determination that such dominant reason requires tax treatment as a gift is one of law, to which the appeals court does not owe deference.
The Court decided that such payments by the players in casinos are not motivated by “detached or disinterested generosity
Generosity
Generosity is the habit of giving freely without expecting anything in return. It can involve offering time, assets or talents to aid someone in need...
,” but instead was an “involved and intensely interested act” motivated by a hope that such a “tribute to the gods of fortune” would be “returned bounteously.” The Court enumerated a number of factors to consider in making the determination that the tips should be reasonably regarded as compensation
Remuneration
Remuneration is the total compensation that an employee receives in exchange for the service they perform for their employer. Typically, this consists of monetary rewards, also referred to as wage or salary...
for services, including:
- the regularity of the flow
- the equal division of receipts, and
- the daily amount received
The Court announced a generalization that:
“receipts by taxpayers engaged in rendering services contributed by those with whom the taxpayers have some personal or functional contact in the course of the performance of the services are taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
when in conformity with the practices of the area and easily valued.”
Clearly, tips to dealers fit this description. As such, the tips should be included in gross income
Gross income
Gross income in United States tax law is receipts and gains from all sources less cost of goods sold. Gross income is the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or nonresident."Except as otherwise provided" by...
.