Tax Law Commons^™

Taxation - Federal Income Tax-What Constitutes Accident Or Health Insurance Under Section 22(B)(5)-, Marvin O. Young

Michigan Law Review

Plaintiff brought this action to recover federal income tax paid by him for the year 1945 on a sum of $1800 which plaintiff received from his employer pursuant to a "free" sickness benefits plan which plaintiff's employer had in effect, claiming that this amount was excludable from gross income under section 22(b)(5) as "amounts received through accident or health insurance." Plaintiff's employer was an insurance company with authority to write health and accident insurance, and "free" protection was given to all full-time salaried home and branch office employees who could pass a satisfactory medical examination. Many ordinary features of a …

Taxation-Federal Income Tax-Constitutionality Of The Clifford Regulations, Robert G. Russell S.Ed.

Michigan Law Review

Taxpayer created a five year irrevocable trust on December 1, 1941 for the benefit of a charitable foundation. She retained a reversion in the corpus but disclaimed any right to income. She did not retain, directly or indirectly, any interim control over the corpus or income. On December 1, 1942 the term of the trust was extended to December 1, 1951. Taxpayer did not report the income of the trust in her return. The Commissioner assessed deficiencies for 1946 claiming that the trust was for a term of nine years and that under the new ten year rule, the income …

Judicial Techniques In Combating Tax Avoidance, Ralph S. Rice

Michigan Law Review

There is no problem today more fundamental in federal tax law than the rationale (or lack of it) that underlies the conduct of the courts in striking down tax avoidance devices and refusing to recognize business arrangements which meet statutory requirements for tax saving but exude an odor piscatorial.

Taxation-Federal Income Tax-Payment To Lessee For Surrender Of Lease Taxable As Capital Gain, Theodore J. St. Antoine

Michigan Law Review

Taxpayer, a tenant in possession of premises under a lease, received a payment from the lessor to vacate and surrender the premises before the lease expired. The Tax Court decided that the payment was taxable only as a capital gain. On appeal, held, affirmed. Since the leasehold interest constituted property, its transfer by the lessee to the lessor was a sale of a capital asset under I.R.C., §117. Commissioner v. Golonsky, (3d Cir. 1952) 200 F. (2d) 72.

Constitutional Law-Relation Between State And Federal Governments, J. David Voss

Michigan Law Review

Plaintiffs, employees of a United States Naval Ordnance Plant located in an area of exclusive federal jurisdiction within the State of Kentucky, sued in a state court for a declaratory judgment that a license tax on the privilege of working in the City of Louisville, measured by a percentage of all salaries, wages and commissions earned within the city, was not applicable to them. Defendants' demurrer was overruled, and the collection of the tax enjoined. The Kentucky Court of Appeals reversed, and judgment was entered for the defendants. The court of appeals affirmed. On appeal to the United States Supreme …

Taxation-Federal Income Tax-Status Of Payment Of Corporate Liability By Stockholder Subsequent To Liquidation, George V. Burbach S.Ed.

Michigan Law Review

Petitioners, from 1937 to 1940, received distributions from the liquidation of a corporation of which they were stockholders and reported the profits thus obtained, classifying them as capital gains pursuant to I.R.C., §115. In 1944, a judgment was rendered against the corporation. Petitioners, as transferees, paid the judgment and took a deduction of 100 per cent, classifying the amount paid as an ordinary business loss. The Commissioner took a contrary position, and held the payment a capital loss. The Tax Court upheld the petitioners' contention but the court of appeals reversed. On appeal, held, affirmed, three Justices dissenting. The …

Municipal Corporations--Charter Amendment-Submission Of Three Propositions In The Form Of One Question, Joseph M. Kortenhof S.Ed.

Michigan Law Review

The council of defendant city adopted a resolution whereby the city charter was to be amended to authorize a limitation of I% per annum on property taxes, an excise tax of 1% per annum on salaries, commisions and profits of both nonresidents and residents, and disposition of the monies received by the income tax. The proposed charter revision was approved by the qualified electors by a margin slightly less than two to one. The plaintiffs, electors and residents of the city, obtained an injunction against enforcement of the charter amendment. On appeal, held, affirmed. The charter revision was ineffectual …

Taxation-Collection And Enforcement-Action Against Collector Of Internal Revenue Not The Proper Method Of Removing Federal Tax Liens, John Houck S.Ed.

Michigan Law Review

Plaintiff's property was under a federal tax lien. He brought suit in the district court against the Collector of Internal Revenue, alleging fraudulent issuance of the lien and seeking removal and damages occasioned by the cloud on his title. The collector moved to dismiss on the grounds that no claim was stated upon which relief could be granted, and further, that the collector was not the proper party defendant, while the United States, which had not been joined, was indispensable to the proceeding. Held, petition dismissed. The court found no indication of fraud, but even assuming fraud to exist, …

Title Examinations In Michigan As Affected By The General Federal Tax Lien, L. Hart Wright

Michigan Law Review

There are three federal tax liens which serve to haunt the average title examiner. The first of these is pitched at the wholesale level; it is a shotgun type lien applicable to all federal taxes and is now provided for by section 3670 of the Internal Revenue Code. The second and third are not nearly so sweeping. One is confined to the federal estate tax, being provided for by section 827 of the code, while the other reinforces the federal gift tax and is the product of section 1009 of the code.

The discussion which follows deals only with the …

Apportionment Of The Federal State Tax In The Absence Of Statute Or An Expression Of Intention, William P. Sutter

Michigan Law Review

Federal law now provides in sections 826 (c) and (d) of the Internal Revenue Code that life insurance and property transferred by appointment shall bear their proportionate tax burden. It does not contain similar provisions with respect to other types of non-probate property. At the present time, twenty states provide by statute for some sort of apportionment of estate taxes. Two states have statutes restricting apportionment in some degree. In the rest, the matter rests in the discretion of the courts. I propose to discuss in this article the situation in those areas where no statutory guidance exists.

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 …

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.