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Helvering v. Horst | 311 U.S. 112 (1940)

During the holidays, many people seek to give their family members gifts that keep on giving years later. Some may gift bonds’ interest coupons to allow the recipient to cash in the interest payments in subsequent years. Does doing so create tax liability for the gift-giver or the recipient? The United States Supreme Court addressed this issue in the 1940 case of Helvering versus Horst.

Horst owned negotiable bonds, which are bonds transferable to other parties. The bonds allowed Horst to receive his principal investment back once the bonds matured, as well as periodic interest payments. The bonds’ interest coupons indicated the timeline and amount of the interest payments. Prior to the bonds’ due dates, Horst detached the interest coupons and gave them to his son as a gift. Horst’s son collected the interest coupons once the coupons matured and included the coupons on his 1934 and 1935 tax returns.

Helvering, the Internal Revenue Commissioner, ruled that Horst’s gift of the interest coupons to his son was taxable income to Horst. The United States Board of Tax Appeals ruled in favor of the Commissioner. The Court of Appeals reversed. The United States Supreme Court granted cert.

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