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United States v. Gotcher | 401 F.2d 118 (1968)
In an effort to expand its U.S. business in the 1950s, Volkswagen began bringing prospective dealers to Germany, where they could tour manufacturing facilities and admire the results of the growing postwar economy. This game plan worked, and Volkswagen’s sales skyrocketed. United States versus Gotcher tells the tale of a dealer who went on one of these junkets and then ran afoul of the Internal Revenue Service, or IRS.
John Gotcher was a car salesman at Economy Motors in Sherman, Texas. In 1960, his employer and Volkswagen shared the cost of sending him and his wife to Germany. When Gotcher returned, he bought a quarter interest in Economy Motors and began selling Volkswagens.
Gotcher didn’t include the value of the trip in his reported gross income. The IRS concluded that the trip should’ve been counted as income and assessed Gotcher a tax deficiency. Gotcher paid the deficiency and then sued the United States for a refund.
The federal district court interpreted the Internal Revenue Code’s definition of income to include only an economic or financial benefit conferred as compensation for services rendered. It found that both Gotcher and his wife had been sent to Germany so that Volkswagen could persuade them to invest in its product. It held that the cost of the trip wasn’t income. The United States appealed to the Fifth Circuit.
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