Tax Law Commons^™

Taxation-Federal Income Tax-Payments Under Written Agreement Incident To Divorce, David W. Rowlinson S. Ed.

Michigan Law Review

Petitioner and her husband separated in January 1919 after marital difficulties. The following sequence of events transpired in the next four months: the husband employed detectives to follow his wife and discover evidence on which a divorce action could be predicated; petitioner instituted proceedings for legal separation; a separation agreement was executed under which the husband was to give petitioner an initial payment of $200,000 and subsequent annual payments of $30,000 for her life; the husband began a suit for divorce to which petitioner counterclaimed for a divorce; a divorce was decreed in favor of petitioner. Petitioner did not ask …

Patent Royalties As Capital Gains Under I.R.C., Section 117(A), Ruth E. Riddell

Michigan Law Review

With the incidence of high personal surtax rates, a patentee is ordinarily interested in deriving the greatest monetary return after taxes, measured in proportion to the extent of use over what he expects to be the increasingly productive life of the intangible right evidenced by his patent, without surrendering his option to reclaim the patent in event of insolvency or lack of diligence on the part of the person to whom he transfers the patent for exploitation. Although ideal for these purposes, the favorable capital gain status under section 117(a) of the Internal Revenue Code, requiring recognition of only fifty …

Conflict Of Laws - Negotiable Instruments - Situs Of Bearer Bonds Under The Trading With The Enemy Act, W. H. Bates S.Ed.

Michigan Law Review

ln a suit on a negotiable instrument, a problem arises as to just how many places can claim valid jurisdiction. Thus, where the domiciles of the parties to a negotiable instrument are diverse, there are several jurisdictional possibilities. For example, with regard to a negotiable bearer bond it may be said that there is sufficient contact with the parties and/or the property (1) at the place where it was issued, (2) at the present location of the certificate of indebtedness, (3) at the location of the debtor corporation's office or principal place of business, or (4) in the state of …

Taxation-Federal Income Tax-Deductibility Of Contributions To Profit-Sharing Trusts, W. H. Bates S.Ed.

Michigan Law Review

Plaintiff corporation set up a profit sharing trust for the benefit of its employees as authorized under section 165(a) of the Internal Revenue Code. The plan for the trust, as approved by the Treasury, provided that plaintiff should contribute annually an amount equal to 15 % of net income, as defined, not to exceed 15% of basic salary or wages of all eligible participating employees. For the tax year 1944 plaintiff claimed deductions under section 23(p)(1)(C) for an amount equal to 15% of the total participating payroll, which is actually the allowable maximum, but which in this case exceeded 15% …

Taxation-Federal Income Tax-Gain On Sale Of Livestock, David F. Ulmer S.Ed.

Michigan Law Review

Taxpayer was engaged in the business of raising and breeding beef cattle. Each year he would add to the breeding herd the young females raised the previous year and would cull from the herd those older cows who had outlived their most productive years and such young heifers as had proved unproductive. These culls were sold on the market, and taxpayer returned the amounts received from these sales as capital asset gain. The Commissioner assessed a deficiency claiming the sales resulted in ordinary income. Held, the sale of culls from a breeding herd is treated as a sale of …

Taxation-Federal Income Tax-Exempt Corporations-Statutory Interpretation, Patrick J. Ledwidge

Michigan Law Review

Plaintiff corporation was organized in 1947 by physicians who had formerly maintained a clinic for the practice of medicine as a partnership. The articles of incorporation provided that there should be no capital stock and no dividends, and stated that plaintiff was organized as a non-profit corporation for the purpose of providing medical treatment and hospitalization to sick and injured persons without regard to ability to pay therefor, and of providing such other incidental charitable services as the "trustees" of the corporation should prescribe. Pursuant to its by-laws, plaintiff paid such annual salaries to its member physicians as the trustees, …

Taxation-Federal Income Tax-Sale Of Goodwill Treated As Sale Of A Capital Asset, David F. Ulmer S.Ed.

Michigan Law Review

Plaintiffs were partners in a wholesale produce business which was well established and had a large goodwill value in the area. Plaintiffs sold the whole business, including goodwill, to another produce dealer, with a specific portion of the sale price being allocated to the sale of the goodwill. Included in the sale contract was an agreement by the sellers not to compete with the purchaser for a certain number of years, but it was understood by the parties that none of the sale price was given in consideration of this agreement. Plaintiffs returned the amount received from the sale of …

Some Latter Day Developments In The Taxation Of Liquidating Distributions: Is The Cop Still On The Beat?, Willard H. Pedrick

Michigan Law Review

Redemption and salvation are doctrinal terms suggestive of the enthusiasm of the camp meeting. It is altogether fitting that these terms be used in connection with the taxation of corporate liquidating distributions. Through redemption of his stock the shareholder may find this world's nearest approach to fiscal salvation-taxation of his receipts on a capital-gains basis. To say the shareholder's enthusiasm for capital-gains treatment approaches a religious zeal is to underestimate the matter. Nor is it difficult to understand his attitude. If corporate earnings and profits, subjected at the outset to a relatively Hat but heavy corporate income tax, are paid …

Taxing Distributions Pursuant To Corporate Reorganizations, William M. Emery

Michigan Law Review

"Distributions" implies that we are concerned with the tax problems of the stockholder rather than those of the corporation. And while one corporation may be the stockholder of another, my emphasis will be primarily upon stockholders who are individuals, including, of course, trusts and estates who are taxed as individuals.

Taxation-Federal Income Tax-Period For Deduction Of Embezzlement Losses, Thomas P. Segerson S.Ed.

Michigan Law Review

This action was brought against the United States for a refund of income taxes paid. Plaintiff taxpayer claimed she was entitled to a deduction in 1941 for losses resulting from the embezzlement of funds by a trustee which were discovered in that year. The Commissioner of Internal Revenue disallowed the claimed deduction because the acts constituting the embezzlement had taken place during prior years. Held, judgment for defendant. Embezzlement losses are deductible in the years in which the defalcations take place, not in the years such defalcations are discovered. Alison v. United States, (D.C. Pa. 1951) 97 F. …

Constitutional Law-Due Process-Freedom Of Expression- Commerce Clause-Clause-"Green River" Ordinance As Applied To Door To Door Solicitation For Magazine Subscriptions, C. E. Lombardi, Jr. S.Ed.

Michigan Law Review

In their famous article on the right of privacy, Warren and Brandeis noted that the common law protection of the right of privacy in the home was far more highly developed than the protection given to individual privacy in other respects. "The common law has always recognized a man's house as his castle, impregnable, often, even to its own officers engaged in the execution of its commands." The common law impregnability has met perhaps its stiffest test when those attacking it have sought constitutional protection. The recent decision of the Supreme Court in the case of Breard v. City of …

Lectures On Taxation Of Business Enterprise, University Of Michigan Law School

Summer Institute on International and Comparative Law

The problems relating to the taxation of business enterprise cover a wide area. Economic considerations and policy problems, always present and always important, assume added significance in a crisis period marked by high budgets and the need for increased revenues. The interpretation and application of the tax laws, notably the federal income tax statutes, create problems as numerous as they are difficult and complex. Here is an area of interest that challenges the attention and interest of legislators, economists, lawyers, accountants, corporate executives and public administrators.

In its choice of the general theme for the 1951 Summer Institute and in …

Commentary On General Relief Under The Excess Profits Tax Act Of 1950, Thomas N. Tarleau

Michigan Law Review

Analysis of an excess profits tax involves inquiries which are essentially foreign to the concepts of ordinary income taxation. The question of excess profits arises only after taxable income has been defined and characterized, its recipients determined and the time of receipt established. The problem is to divide taxable income into two components, one representing the corporation's normal profits, which it is permitted to enjoy free of the penalty tax, and the balance which is deemed to be "profits due to the outbreak of hostilities and to large military expenditures." Under the Excess Profits Tax Act of 1950, as was …

Employee Stock Options, Reece A. Gardner

Michigan Law Review

The taxation to an employee of the difference between the fair market value of a share of stock transferred to him by a corporate employer, pursuant to the employee's exercise of an option to acquire it at a price below the value of the share, has for years been a matter of dispute between taxpayers and the Commissioner of Internal Revenue. This dispute has involved not merely, as in the case of many of the hardy tax perennials such as reasonableness of compensation, a question as to the application of facts to a well-defined principle of law, but rather a …

Tax Exempt Charitable Corporations: Revenue Act Of 1950, Maurice Finkelstein

Michigan Law Review

In 1895 Joseph Choate, a distinguished leader of the American Bar, arguing before the Supreme Court of the United States said: "The Act of Congress [the income tax law] which we are impugning before you is communistic in its purposes and tendencies, and is defended here upon principles as communistic, socialistic-what shall I call them -populistic as ever have been addressed to any political assembly in the world. . . . I have thought that one of the fundamental objects of all civilized government was the preservation of the rights of private property. "

While the great advocate no doubt …

Constitutional Law--Import-Export Clause--Validity Of A State Gross Receipts Tax On Common Carriers Transporting Imports And Exports, Roger D. Anderson S.Ed.

Michigan Law Review

The State of Maryland levied a nondiscriminatory gross receipts tax on revenues of common carriers operating within the state, apportioned on the basis of trackage within Maryland to trackage everywhere. Petitioners, who are common carriers operating within Maryland, objected to this tax to the extent that it constituted a tax on gross receipts derived from transporting imports and exports on the grounds that it violated the import-export clause. The court of appeals of Maryland declared the tax valid. On appeal, held, affirmed. Where the tax is on an activity connected with the import or export of goods, rather than …

Constitutional Law-Commerce Clause-State Taxation Of Interstate Commerce, William H. Bates

Michigan Law Review

Appellant, a Missouri corporation, was domiciled in Illinois and engaged in interstate trucking of commodities to and from Connecticut. The appellant had twenty-seven employees, office equipment, pick-up trucks and two terminals within Connecticut. Approximately one-third to one-half of appellant's business originated in Connecticut, but a very small percentage of the total mileage traveled by its trucks lay within the state. Appellant was not engaged in intrastate commerce, nor had it been authorized to transact such business. Under the Connecticut Corporation Business Tax Act of 1935 appellant was assessed for taxes and penalties. The statute imposed a franchise tax upon certain …

Taxation-Income Tax-Taxability Of Payments Made To Widows Of Deceased Employees, Douglas L. Mann S.Ed.

Michigan Law Review

Payments were made by an employer to the widow of a deceased employee in consideration of services rendered by the employee. Held, the payments were includible in the widow's gross income for federal income tax purposes. I.T. 4027, Int. Rev. Bul., Oct. 16, 1950, 2, 505 CCH ¶6208.

Taxation-Percentage Depletion Allowance On Income Received From The Reworking Of Dumps And Tailings Deposits, Charles Horning

Michigan Law Review

A dump of waste material and low-grade ore resulted from mining operations by a lessee in the American Mine. London Extension owned an undivided one-half interest in the claims which made up the mine. In 1940 London acquired the lease on the property. Chicago Mines, a wholly-owned subsidiary of London, then took a lease on the dump, agreeing to pay to London a royalty of twenty per cent of the net smelter returns. Chicago worked the dump for a few months, after which it was worked by London. In filing its income tax return for the year, Chicago claimed a …

Taxation-Percentage Depletion Allowance On Income Received From The Reworking Of Dumps And Tailings Deposits, Charles Horning

Michigan Law Review

A dump of waste material and low-grade ore resulted from mining operations by a lessee in the American Mine. London Extension owned an undivided one-half interest in the claims which made up the mine. In 1940 London acquired the lease on the property. Chicago Mines, a wholly-owned subsidiary of London, then took a lease on the dump, agreeing to pay to London a royalty of twenty per cent of the net smelter returns. Chicago worked the dump for a few months, after which it was worked by London. In filing its income tax return for the year, Chicago claimed a …

Realization Of Income Through Cancellations, Modifications, And Bargain Purchases Of Indebtedness: Ii, L. Hart Wright

Michigan Law Review

Introductory note. That some matters relating to the particular consideration received by a debtor on incurring an obligation would affect the applicability of the Kirby case to a saving derived by him from a subsequent cancellation or other bargain discharge was one of the first propositions settled by the Supreme Court. For the Kirby case itself justified the earlier immunity which had been granted the apparently solvent Kerbaugh-Empire Company on the ground that the funds which the latter had borrowed were lost in the venture for which its loan had been procured.

Taxation-Immunity Of Federal Bonds To State Taxation, Lenamyra Saulson

Michigan Law Review

A New Jersey statute imposed a tax on domestic stock insurance corporations on the value of intangible property exclusive of tax-exempt property but required an assessment against all intangible property of not less than fifteen per cent of capital and surplus in excess of liabilities. In conformity with this statute, a tax was imposed on the appellant, a domestic stock insurance corporation, of fifteen per cent of the entire net worth, without deduction of the principal amount of tax-exempt United States bonds and accrued interest thereon. The appellant appealed to the United States Supreme Court on the ground that the …

Realization Of Income Through Cancellations, Modifications, And Bargain Purchases Of Indebtedness: I, L. Hart Wright

Michigan Law Review

Treasury regulations bearing on the tax consequence of a cancellation, modification, or bargain purchase of one's outstanding indebtedness date back to those issued in connection with the Revenue Act of 1918. Thirteen years elapsed after their issuance before the Supreme Court in 1931 finally approved, at least with respect to the bargain purchase with which it was concerned, the principal which the regulations incorporated, namely, that the savings effected by such debtors could, as a constitutional as well as a statutory matter, involve the realization of taxable income. Competing interpretations of that decision, the government insisting on a sweeping application …

Gifts For The Benefit Of Minors, Austin Fleming

Michigan Law Review

Primarily because of tax incentives, lifetime gifts have become increasingly popular in recent years among persons of wealth. Until the Revenue Act of 1948, such gifts were frequently made between spouses. But the tax advantages of interspousal gifts were greatly lessened by the split-income privilege and the marital deduction, and a new inducement was given to gifts to third persons by the establishment of the right to treat such gifts as being one half from each spouse. As a result, gifts to children and grandchildren have taken on new prominence.

Tax Statutes-The Role Of Stare Decisis In Determining "Legislative Intent", Paul E. Anderson S. Ed.

Michigan Law Review

An interesting case history recently unfolded by the Supreme Court reveals a novel application of stare decisis to decisions which interpret an act of Congress. The peregrinations of the Court have caused Congress to intervene on two occasions to settle the questions opened by the Court-although on the second occurrence the Court construed the act precisely as had Congress when it decried the Court's first interpretation. This imbroglio issued from the Revenue Act of 1918 under which Congress provided that transfers "intended to take effect in possession or enjoyment at or after his death" should be included in the donor's …

Taxation-The Lincoln Electric Question: Must "Ordinary And Necessary" Business Expenses Be Also "Reasonable" In Amount, R. Lawrence Storms S. Ed.

Michigan Law Review

The United States Court of Appeals for the Sixth Circuit has recently determined in Commissioner v. Lincoln Electric Co. that the element of reasonableness is inherent in the phrase "ordinary and necessary" as used in the paragraph of the Internal Revenue Code authorizing deductions for business expenses. It will be of interest to develop the history of the case throughout its ten years of litigation, to examine some of the collateral points raised, and to attempt a critique of the merits of the court's position.

Basic Criteria For Distinguishing Revenue Charges From Capital Expenditures In Income Tax Computations, Abe L. Shugerman

Michigan Law Review

In the sections that follow, every effort has been made to deduce the motivating philosophy behind the judicial decisions that have been rendered on this question. Courts, themselves, have never paused to prescribe any detailed criteria to be applied, but an examination of the opinions has revealed that consciously or unconsciously the courts have been moved by such basic criteria. Even though such criteria may not have been precisely designated, they have been present, they have been utilized, and interestingly enough, the courts have been amazingly consistent in their applications of these criteria.

Real Property-Tax Sales-Title Of Purchaser Of Land Subject To Easement, John J. Gaskell S.Ed.

Michigan Law Review

In an action to enforce a lien for taxes on real property, the defendants counterclaimed, asking for a declaratory judgment as to whether a sale of real property for nonpayment of taxes extinguishes an easement with which the property is burdened. The easement was appurtenant to an adjoining parcel of land. Held, an easement appurtenant is not extinguished by sale of the servient tenement for nonpayment of taxes. District of Columbia v. Capital Mortgage & Title Co., Inc., (D.C. Cir. 1949) 84 F. Supp. 788.

The Taxable Income Of Cooperatives, Roswell Magill, Allen H. Merrill

Michigan Law Review

This article is a study of the exemption in section 101(12) of "farmers', fruit growers', or like associations organized and operated on a cooperative basis"; and, in particular, of the taxability of the income of such corporations. The basic question is, What is the taxable income of a cooperative, in the absence of statutory exemption or exemption by administrative ruling? Do such business corporations have an income from their businesses which in these days of revenue stringency should be taxed as other business income must be taxed?

Taxation-Income Tax-Deductions For Expenses Of Army Officer, Daniel A. Isaacson S.Ed.

Michigan Law Review

Respondent, having had experience as an executive of a large machine tool distributing company, went to Washington, D.C. in 1942 at the request of the Ordnance Department of the United States Army to assist in the efficient distribution of machine tools, serving in a civilian capacity without compensation. During the year, he was commissioned in the army, attaining the rank of Lieutenant Colonel, and was assigned to the Army & Navy Munitions Board as Ordnance Officer, in which capacity he had to keep in contact with manufacturers of production equipment as well as with various government agencies. In his income …