Tax Law Commons^™

Taxation - Income Tax - Improvements Made By Lessee As Income To Lessor, Ralph E. Helper

Michigan Law Review

The recent decision of the Supreme Court of the United States in M. E. Blatt Co. v. United States has fairly settled the conflict that has ranged for over twenty years between the Commissioner of Internal Revenue and the Board of Tax Appeals on one side, and the courts on the other. The commissioner's contention that improvements made by a lessee should be taxed as income to the lessor was denied, and by dictum the Court approved the reasoning of Judge Learned Hand in Hewitt Realty Co. v. Commissioner, wherein he said that the judicial concept of "income" did …

Constitutional Law - Taxation - Curtailment Of Intergovernmental Tax Immunities, Allan A. Rubin

Michigan Law Review

In the recent well-publicized decision of Graves v. O'Keefe, the United States Supreme Court, following a path adequately cleared by Helvering v. Gerhardt, again enlarged the scope of the governmental powers to impose non-discriminatory taxes. In so doing, the Court clarified the fundamental principles underlying intergovernmental tax immunities by eliminating inconsistencies and resolving confusion persisting in this field of law. The Gerhardt case had sustained the imposition of a federal income tax on the salaries of employees of the Port of New York Authority, a state instrumentality created by New York and New Jersey. But it had not …

Taxation-Income Tax -Jurisdiction -Trusts - State Tax On Resident Beneficiary's Net Income From Trust Established And Administered By Non-Resident Trustee, Allan A. Rubin

Michigan Law Review

The state of Virginia imposed an income tax upon the income received by a resident of Virginia as beneficiary of a discretionary trust established and administered in New York by a resident of New York, which state had levied and collected an income tax on the entire income of the trust fund. Petitioner protested the payment of the Virginia tax, alleging the taking of property without due process of law and the denial of equal privileges in contravention of the Fourteenth Amendment of the Federal Constitution. Held, that the tax was valid, since it was ascertained by the beneficiary's …

Taxation - Income Tax - Deductions - Ordinary And Necessary Business Expenses - Commissions Paid To Senator For Securing Public Contracts, Ralph E. Helper

Michigan Law Review

Taxpayer, a gravel company, employed as salesman a state senator, who obtained several contracts with the State Highway Commission of Louisiana. The Board, of Tax Appeals disallowed deductions for the commissions paid therefor, on the ground that the payments were for using personal influence with a governmental department, pursuant to a contract which is contrary to public policy. Held, in absence of evidence that the state senator agreed to or attempted to use any personal or political influence, the commissions paid to him are deductible business expenses. Alexandria Gravel Go., Inc. v. Commissioner of Internal Revenue, (C. C. …

Taxation - Social Security - Dissolution Of Corporation And Formation Of Partnership As Means Of Avoiding Tax, Arthur P. Boynton

Michigan Law Review

The O Company surrendered its corporate charter and began operating under an agreement purporting to establish a partnership relation between the former officers and employees whereby complete management including the power to employ, discharge and control the duties of its members was vested in a "board of control" elected by and subject to changes made by the majority in interest. Net profits and losses were shared in proportion to the respective interests. The firm could be dissolved only by a vote of the majority in interest and not by transfer of interest, death or resignation of a member. Advice was …

Some Indicia Of Capital Transfers Under The Federal Income Tax Laws, Paul Harvey

Michigan Law Review

The fundamental difference between capital and income is recognized throughout the entire structure of the income tax law, and many decisions have distinguished between the two for the purpose of determining whether a given transaction comes within the meaning of the term "income" as used in the Sixteenth Amendment. But while recognizing the fundamental differences between capital and income, apparently the courts have been somewhat doubtful about advancing any broad, general statements by which specific transactions might be classified. While they have sometimes hesitated to call a specific item a capital transfer, they have, nevertheless, held numerous transactions involving the …

Taxation - Income Taxes - Deduction For Uncompensated Damages To Non-Business Property, Anthony L. Dividio

Michigan Law Review

Several years prior to 1934, the taxpayer purchased a pleasure automobile for $1,825. Its value in 1934 was $225; after a collision its value was $190. The Circuit Court of Appeals for the Second Circuit upheld the taxpayer's contention that inasmuch as a taxpayer is not allowed an annual deduction for depreciation on non-business property, the original cost of such property constituted the basis for measuring the "uncompensated loss" allowed as a deduction for income tax purposes under section 113 (b) (1) (B) of the Revenue Act of 1934. Held, the decision of the Circuit Court of Appeals should …

Automobiles - Registration Of Title And Transfer - Effect On Ownership, Gerald M. Stevens

Michigan Law Review

Who owns this automobile? is a question of frequent interest both to the state and to its citizens. Identification of it and its owner may be a leading clue to the solution of crime; its owner must often be apprehended as the first step toward punishment of one of the considerable list of offenses peculiar to the operation of motor vehicles; it constitutes an important item of taxable property. The private citizen is interested in its ownership to identify the proper defendant in his tort action; it is an obvious source of satisfaction of his claim against a debtor; or …

Taxation - Income Tax - Exempt Reorganizations - When Is A Reorganization Bona Fide Under The Rule Of Gregory V. Helvering, Ralph E. Helper

Michigan Law Review

An individual wished to buy certain patents from a corporation, and at his instigation, the corporation transferred them to a newly-organized patent holding company, which issued its shares directly to the stockholders of the transferor corporation. On discovery of disadvantages from this scheme, the buyer requested that the new corporation be dissolved and that the patents be assigned by the original patentee individually. Petitioner and all other shareholders sold their stock in the new corporation to the patentee in exchange for his notes, and he dissolved the corporation, receiving the patents on liquidation. The patents were then sold for cash, …

Taxation - Interstate Commerce - Use Tax On Gasoline, M. D. Blackwell

Michigan Law Review

A statute provided that it was unlawful to operate an automobile over the state highway without paying a certain tax on the sale or use of gasoline. Plaintiff operated a common carrier between two cities which were not in the state, the route taken by the carrier, however, running through the state. Plaintiff habitually brought gasoline into the state in the tanks of its motor carriers, and in this suit it sought to enjoin collection of the tax, alleging that as applied to its business the statute was unconstitutional because the tax thus imposed was an unreasonable burden on interstate …

Obligatory Jurisdiction Of The Supreme Court: Appeals From State Courts Under Section 237(A) Of The Judicial Code, Seymour J. Rubin, Sidney H. Willner

Michigan Law Review

In two ways, a case decided by the state court of last resort may come to the Supreme Court of the United States: by certiorari, or by appeal. Certiorari is discretionary; and the considerations which will lead the Court to grant a writ of certiorari are set out in Rule 38 of the Supreme Court Rules, and are well-known to the practicing bar. Appeal, however, is directed to the obligatory jurisdiction of the Court. Rule 12 merely sets out the procedure to be followed in seeking an appeal; and for his decision as to whether he has substantive basis for …

Proceedings Of The Law Institute Part I, University Of Michigan Law School

Event Materials

Proceedings of the Law Institute held at the University of Michigan Law School, Ann Arbor, Michigan

Thursday, Friday, and Saturday June 22-24, 1939

Taxation -Income Tax - Profit On Sale Of Securities - Identification Of Shares Sold, Milton A. Kramer

Michigan Law Review

The taxpayer ordered his broker to sell certain shares of stock purchased in March, 1929, which were on deposit at a bank. He then ordered the bank to deliver a thousand shares from certificates numbered 80250 to 80258 inclusive, and 80264. It does not appear whether the instructions were written or oral. The bank, however, delivered by mistake certificates from another lot which had a considerably lower cost basis and had been held as collateral since 1925. The Board of Tax Appeals concluded that the shares delivered to the broker as represented by the certificates were the shares actually sold …

Taxation - Income Tax - Settlement Of Will Contest As Taxable, Anthony L. Dividio

Michigan Law Review

Taxpayer commenced suit to contest the probate of his grandmother's will, by which she had made nominal bequests to her grandchildren, and had created a charitable trust with the large residue. The parties agreed upon a settlement, as a result of which taxpayer received $141,404.03, all of which the tax commissioner claimed was taxable income. Held, the amount received by taxpayer came to him because he was an heir and did not constitute taxable income. Lyeth v. Hoey, (U. S. 1938) 6 U. S. Law Week 421 (Dec. 6, 1938).

The Windfall Tax And Processing Tax Refund Provisions Of The Revenue Act Of 1936, Keith P. Bondurant

Michigan Law Review

The proposition that a seller who has collected from his vendees but has not paid to the government taxes imposed under an unconstitutional statute is unjustly enriched, and the correlative principle that a taxpayer has no right to recover invalid taxes paid by him if he has shifted the burden of such taxes to others, are embodied in title II and title VII, respectively, of the Revenue Act of 1936. Title VII prohibits refunds to processors and other vendors of amounts collected from them as tax under the Agricultural Adjustment Act unless the claimant can establish that he bore the …

Taxation - Income Tax - Surtax On Income Of Corporation Where Profits Are Accumulated To Avoid Surtax On Income Of Its Shareholders - Construction, Brackley Shaw

Michigan Law Review

Section 104 of the Revenue Act of 1928 imposed a surtax on the net income of any corporation "formed or availed of for the purpose of preventing the imposition of the surtax on its shareholders through the medium of permitting its gains and profits to accumulate instead of being divided and distributed," and provided that "the fact that the gains or profits are permitted to accumulate beyond the reasonable needs of the business shall be prima facie evidence of a purpose to escape the surtax." Defendant corporation was formed in 1911 with $200,000 capital stock all owned by Kohl. In …

Death Taxes On Completed Transfers Inter Vivos, Lorentz B. Knouff

Michigan Law Review

The subjection of transfers inter vivas to the death tax under each of the above categories has been based upon the proposition that, for a transfer inter vivas properly to be subject to the death tax, it must bear some reasonable relationship to transfers at death either by will or under the law relating to intestacy. This rule has been applied both in problems of statutory construction and in problems of constitutionality. The recent decision of the United States Supreme Court in Helvering v. Bullard seems to have abandoned this test for the inclusion of transfers inter vivas within the …

Taxation-Income Tax-Refund For Overpayment-Equitarle Defense By Government When Collection Of Deficiency Barred By Limitations, Michigan Law Review

Michigan Law Review

Petitioner's deceased sold stock under an installment contract and made a large profit thereon. The deceased died in 1928. Under Sections 44 (d) and 113 of the Revenue Act of 1928 the executor made an underpayment for 1928, and overpayments for 1929, 1930, and 1931. The amount of the 1928 deficiency exceeded the aggregate of the overpayments for the three subsequent years. Petitioner filed a claim for refund of the overpayments. The government was barred by limitations from recovering the tax deficiency for 1928. Held, the petitioner was entitled to recover the overpayments. The government could not assert the …

Constitutional Law - Impairment Of Obligation Of Contracts -Tax On Income Of Bonds Granted Statutory Tax Exemption, Amos J. Coffman

Michigan Law Review

Plaintiffs were holders of certain tax exempt bonds issued under authority of the state of Iowa. After the issue of the bonds a statute was passed imposing a "personal net income tax" upon persons resident within the state. The state board of assessment and review assessed this tax against $36,892.75 interest on the tax exempt bonds. The appellants, alleging that such an application of the law impaired the obligations of contracts of exemption, brought suit. Upon a ruling in favor of the assessment by the Iowa Supreme Court, appellants appealed to the United States Supreme Court. Held, the contract …

Banks And Banking - Taxation Of National Bank - Safe Deposit Vault As Integral Function Of National Bank, Marcus L. Plant

Michigan Law Review

The council of the city of Portland passed an ordinance declaring it unlawful to carry on certain businesses without securing an appropriate license from the city. Among the business activities specified was "Safe Deposit Vault" for which an annual license fee of forty dollars was imposed. The plaintiff, a national bank, and other national banks, all of which operated safe deposit vaults, brought an action to restrain the city and its officers from collecting the fee. It was held that the safe deposit business is a necessary and integral function of a national bank, and therefore the city was without …

Taxation - Sales - Recovery Of Processing Taxes - Remedies Of The Buyer, Keith P. Bondurant

Michigan Law Review

Defendant, a flour milling company, was subjected to payment of processing taxes under the Agricultural Adjustment Act. It entered into contracts with plaintiffs, by the terms of which the amount of such taxes was included in the purchase price of flour. The contracts provided that the amount of any decrease in processing taxes levied against defendant would inure to the benefit of the buyers and be credited against the contract price. Meanwhile, defendant, contesting the validity of the tax, had deposited in court a sum equal to the amount of accrued taxes. After the Supreme Court invalidated the A. A. …

Taxation - Capital Gains Tax (Revenue Act Of 1928) - Reorganizations - Definition Of A Party To A Reorganization, Milton A. Kramer

Michigan Law Review

Although "certainty" is one of the most desirable features of taxation, that quality has been conspicuously absent in regard to the portions of the 1928 Revenue Act which deal with capital gains in corporate reorganizations. In the four situations which the act sets forth as constituting a reorganization, capital gains arising therefrom are exempt from tax computation, the general purpose being to remove any impediment to normal corporate adjustments and to prevent the recognition of gains or losses until they are actually realized. However, this provision soon became an invitation for ingenious counsel to arrange the sales of corporate assets …

Carriers - Federal Regulation Of Motor Transportation Brokers, Charles E. Nadeau

Michigan Law Review

A broker is, in general, an intermediary or "go-between" in the business of negotiating contracts for others. His economic function is that of bringing buyer and seller together. A motor transportation broker is engaged in the business of arranging for contracts dealing with motor transportation service. His function is to bring together a prospective passenger or shipper seeking service and a carrier willing to provide the service demanded. "Tourist agency," "travel bureau," and "share-the-expense agency" are familiar terms used to designate the passenger transportation broker. There is a larger, but not so wellknown, group of brokers dealing in the hauling …

Taxation - Real Property Assessment, Wayne E. Bahler

Michigan Law Review

Based upon the cost-depreciation method applicable to adjacent property, the assessment of the Detroit-Windsor tunnel and terminal resulted in taxes equal to forty-one per cent of the gross revenue for the depression years of 1931-1934; The federal district court enjoined the collection of such amount, and assessed the property by the capitalized income method (seven per cent) plus $3,500 for the value of possible future increased earnings. Upon appeal it was held that the injunction on the original levy be affirmed since the cost-depreciation method was erroneous and offensive to the Fourteenth Amendment in not taking account of depressions or …

Taxation - Stevedoring As Interstate Commerce - Constitutionality Of Occupation Tax, Ralph Winkler

Michigan Law Review

The state of Washington enacted a business privilege tax, the amount of which was to be determined on a gross income basis. A domestic corporation had been servicing vessels engaged in interstate commerce in two ways-it supplied stevedores to the vessels, and it did the work of loading and unloading. In a bill to enjoin the collection of this tax the Supreme Court of Washington dismissed the suit on the ground that the corporation was not engaged in interstate commerce. On appeal, held (1) furnishing stevedores to the vessels without maintaining control over the operations of the workmen is a …

Trusts - Validity - Subject Matter - Profits To Be Acquired In The Future, Paul R. Trigg

Michigan Law Review

The plaintiff contemplated trading in the stock market and in 1927 declared a trust of the proceeds of his stock trading for the year 1928 in favor of various members of his immediate family, agreeing to assume all losses personally and to distribute all profits equally among the beneficiaries after deducting a reasonable compensation for his services. At the expiration of the year 1928, plaintiff deducted $10,000 as compensation, which he reported in his tax return for that year, and credited the named beneficiaries with the remainder on his books, these amount being reported in their respective tax returns for …

Taxation - Compensating Use Tax - Theory - Burden On Interstate Commerce, Brackley Shaw

Michigan Law Review

The California Use Tax Act of 1935 imposes an excise tax on the storage or use of personal property purchased in other states and brought into California. Plaintiff railroad bought materials and supplies in other states and stored them in California before installation on its interstate railroad system, and the tax was assessed on them. Held, the tax is unconstitutional as applied to such property as a direct burden on interstate commerce. Where the property was purchased for the sole purpose of being reserve equipment in an interstate commerce plant it is employed in interstate commerce from the time …

Taxation - Constitutionality Of Federal Admissions Tax As Applied To State Universities, Ralph W. Aigler

Michigan Law Review

In declaring invalid the federal tax so far as it applied to admissions to athletic contests conducted under the auspices of the Regents of the University System of Georgia, the United States District Court has added another very interesting case to the many involving immunity from taxation growing out of our dual system of government. The question arose early, and scores of cases have since been decided.

Depletion Of Oil And Gas Properties For Income Tax Purposes, John W. Beveridge

Michigan Law Review

The Revenue Act of 1936 provides that in computing net income from oil and gas properties there shall be allowed as a deduction from gross income a reasonable allowance for depletion, according to the peculiar conditions in each case. The allowance is made under regulations prescribed by the Commissioner of Internal Revenue.

The first problem is to fix the amount the taxpayer is entitled to recover before he is considered as earning income which is not in essence a mere return of his capital investment. The difficulty of clearly defining the difference between a return of capital and of income …

Taxation - Income Taxation Of Stock Dividends, Wallace Mendelson

Michigan Law Review

In 1929 a stock dividend was paid to the holders of common stock in preferred stock of the dividend paying corporation, which had both common and preferred stock outstanding at the time the stock dividend was declared and paid. The taxpayer, as a holder of common stock, received his pro rata share of the dividend and subsequently within the same taxable year sold the preferred stock which he had so received as a dividend. Held, that under the Revenue Act of 1928, (1) the receipt of the stock dividend was not a taxable occasion, and ( 2) the basis …