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 court 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 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 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.
Read more about this topic: Olk V. United States
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