Taxation-Federal Commons^™

Carter's Projected "Zero-Based" Review Of The Internal Revenue Code: Is Our Tax Code To Be "Born Again"?, L. Hart Wright

Michigan Law Review

The evolution of today's Internal Revenue Code, which began with the mere embryo that Congress created in 1913, has absorbed over the ensuing sixty-four years more creative energy on the part of more co-authors than any other law in history. Despite this unstinted expenditure of "blood, sweat, and tears," the resulting document--were it possessed of human senses--would recognize that, for a foreseeable period, its life will be anything but serene. The plight in which it would find itself could even be compared to that early morning scene observed one hundred years ago by General Custer, when hostile forces were massed …

Federal Taxation Of The Assignment Of Life Insurance, Douglas A. Kahn, Lawrence W. Waggoner

Articles

The most litigated estate tax issue concerning life insurance is whether the proceeds should be included in the insured's gross estate. This question usually is governed by section 2042 of the Internal Revenue Code of 1954, the estate tax provision directed specifically at life insurance. While the Tax Reform Act of 1976 wrought enormous changes in many areas of estate taxation, Congress did not change section 2042. Thus the several unresolved questions concerning the interpretation of that section remain unsettled. But the question of the includability of life insurance proceeds in the gross estate of the insured is not always …

The Judicial Public Policy Doctrine In Tax Litigation, Michigan Law Review

Michigan Law Review

This Note evaluates the merits of Revenue Ruling 74-323. First, it asserts that, while not arbitrary, the Service's resolution of the preemption issue was not mandated by the language of amended section 162 or by the relevant legislative history. Second, it maintains that it is both appropriate and procedurally feasible to apply the judicial public policy doctrine to violations of federal civil rights laws that impose no fine, imprisonment, loss of license, or other criminal penalty. The denial of a deduction in this situation would extend the public policy doctrine beyond both section 162(c)(2) and the judicial doctrine as it …

Estate And Gift Taxation, Douglas A. Kahn

Book Chapters

ANSWERING TAX EXAMINATION QUESTIONS

The key to writing a successful answer to a tax question (as with any law exam) is to locate the relevant issues and to analyze them by interrelating applicable legal principles with the basic facts of the question. This determination of relevant issues must be tied to the facts presented in the question.

The first step in question analysis is to read the facts closely and note each element in the facts that is relevant to issues you have studied in the subject being tested since it is likely that the examiner intended that those issues …

A Definition Of "Liabilities" In Code Sections 357 And 358(D), Douglas A. Kahn, Dale A. Oesterle

Articles

Internal Revenue Code section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation solely in exchange for its stock or securities and the transferors control the corporation immediately after the exchange. If, in addition to receiving stock or securities in an exchange that would otherwise qualify for section 351 treatment, a transferor receives other property or money -- "boot" -- any realized gain is recognized up to the amount of the money and the fair market value of the other property received. The transferee corporation's assumption of the transferor's liabilities or its …

Basic Corporate Taxation, Stefan F. Tucker

Michigan Law Review

A Review of Basic Corporate Taxation, 2d Ed. by Douglas A. Kahn

Federal Invome Tax Discrimination Between Married And Single Taxpayers, Michael W. Betz

University of Michigan Journal of Law Reform

This article explores the present tax rate structure and its implications, considers the historical events and policies which created four separate tax rates, analyzes the tax policies embodied by the different rate treatment of married and single taxpayers, and examines the constitutional problems involved in maintaining the present disparate tax treatment. An alternative tax rate treatment, which will avoid the discrimination inherent in the present system, is suggested.

Treatment Of Income Tax Refunds In Bankruptcy After Lines V. Frederick, Michigan Law Review

Michigan Law Review

Under section 70a(5) of the Bankruptcy Act, the bankruptcy trustee is entitled to take the debtor's interest in "property" that "prior to the filing of the petition [the debtor] could by any means have transferred or which might have been levied upon and sold under judicial process against him." The Act does not, however, specifically define the term "property," and, as a result, the Supreme Court has developed its own definition. No problem has been presented by money or assets held by the bankrupt at the time of filing; such items are uniformly considered to be property. Nor has a …

The Employee's Home Office Deduction: The Problem Of Duplicate Facilities, Michigan Law Review

Michigan Law Review

The Internal Revenue Code expressly and impliedly allows taxpayers to deduct many business-related expenses that also fill personal needs. However, the deductibility of home office expenses under the general provision for business expenses, section 162 of the Code, has been a frequent subject of litigation. Section 162 requires that the employee establish that the expenses were "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Since it is well established that working for an employer is carrying on a trade or business within the statute, in order to secure a deduction …

Income Tax "Loopholes" And Political Rhetoric, Boris I. Bittker

Michigan Law Review

When used by newspaper reporters and politicians, the term "tax loophole" is always a pejorative, though the tone of disapproval may be mingled with a dash of admiration for the astute lawyer or accountant who discovered the device. Since condemnation is the predominant tone, it is always assumed that loopholes can be quickly and reliably distinguished from tax provisions that are reasonable and fair. Sometimes, to be sure, it is suggested that the only criterion is self-interest: one man's loophole is another man's relief provision. More frequently, loopholes are said to inure primarily, if not solely, to the benefit of …

The Real Estate Investment Trust: State Tax, Tort, And Contract Liabilities Of The Trust, Trustee, And Shareholder, Michigan Law Review

Michigan Law Review

This Comment will attempt to alert potential investors in and trustees of REITs to the full extent of the liabilities that they could suffer for contract debts incurred in the name of the trust and torts committed by trust personnel. Since state tax considerations also play a significant role in investment decisions, the manner in which each state taxes the REIT and its shareholders on income derived from property and business in that state will also be investigated. Finally, a rational path out of the morass created by current state law will be articulated in order to prompt renewed discussion …

Federal Tax Administration And The Small Taxpayer, L. Hart Wright

University of Michigan Journal of Law Reform

The actual or supposed complexity of substantive federal tax law has generated two unresolved administrative by-products of peculiar importance in the case of small taxpayers. In each of these circumstances the Internal Revenue Service (and in one, the Congress) has tended to default on its programmatic responsibility to facilitate payment by small taxpayers of no less and no more than they owe under the tax law. For too long and to too large an extent, these taxpayers, although completely bewildered and devoid of self-confidence in the conduct of their tax affairs, have had to fend for themselves, both at return …

Rhoades: Income Taxation Of Foreign Related Transactions, Alan G. Choate

Michigan Law Review

A Book Review of Income Taxation of Foreign Related Transactions by Rufus von Thülen Rhoades

Deferred Compensation Arrangements Under Section 83 Of The Internal Revenue Code: Is Restricted Property Still A Viable Means Of Compensation?, Michigan Law Review

Michigan Law Review

When faced with the problem of compensating key executives, employers have tended to avoid the exclusive use of current cash compensation, since this would result in an immediate and substantial income tax to highly paid employees. Deferred compensation plans have been utilized in order to maximize tax benefits for employees, such as deferred recognition of income and capital gains treatment. Although such plans are structured to meet the needs of the particular employer and employee, several forms of deferred compensation are common. Among these are qualified and unqualified pension, profit-sharing, and stock bonus plans; qualified, restricted, and employee stock purchase …

Federal Income Taxation--Section 165 (C) Loss Allowed For Securities Loaned To Brokerage Firm That Subsequently Became Insolvent And Sold The Securities To Meet The Claims Of Creditors--Stahl V. United States, Michigan Law Review

Michigan Law Review

It is frequently said that there are only two certainties in life: death and taxes. The Court of Appeals for the District of Columbia Circuit recently upheld a district court decision that considerably eased the latter burden for plaintiff-taxpayer in Stahl v. United States. On April 12, 1962, Mrs. Stahl, a widowed musician and music teacher, reached an agreement with Balough & Company (Balough), a Washington securities firm, under which she was to surrender to it control of securities with a market value of approximately $210,000. Balough used the securities to meet the minimum capital requirements for brokerage firms established …

Kahn: Basic Corporate Taxation, John C. Chommie

Michigan Law Review

A Review of Basic Corporate Taxation by Douglas A. Kahn

Civil Rights--Segregation--Federal Income Tax: Exemptions And Deductions--The Validity Of Tax Benefits To Private Segregated Schools, Michigan Law Review

Michigan Law Review

In granting the preliminary injunction, the district court found that plaintiffs were asserting a substantial constitutional claim and had a reasonable possibility of success. Balancing the equities of the parties, the court decided that the possibility of significant adverse effect on the Commissioner and schools awaiting tax benefits was not great and was in any event far outweighed by the harm which could result from a denial of the requested relief pendente lite. Thus, the court found that the threat of irreparable injury justified the issuance of a preliminary injunction. The propriety of the court's decision to grant a preliminary …

Mandatory Buy-Out Agreements For Stock Of Closely Held Corporations, Douglas A. Kahn

Articles

A buy-out of a shareholder's stock is a sale of his stock holdings in a specific corporation pursuatnt to a pre-existing contract. In recent years such arrangements have, deservedly, become an increasingly popular planning device for shareholders in closely held corporations; they make it possible to limit the class of potential shareholders, provide liquidity for the estate of a deceased shareholder, and establish a value for stock which has no active market. There are two popular categories of buy-out plans. If the prospective purchaser of a decedent's shares is the corporation that issued them, the plan is called an "entity …

Income Tax: Corporate Distribution--Tax Benefit Rule Does Not Qualify The Explicit Nonrecognition Of Gain Provision Of Section 337--Anders V. Commissioner, Michigan Law Review

Michigan Law Review

D. B. Anders was the sole stockholder of D. B. Anders, Inc., an industrial service concern which rented supplies of laundered apparel, coveralls, towels, and related textiles. In May 1961, the corporation adopted a plan of complete liquidation and within twelve months sold substantially all of its operating assets, including the rental items, to another corporation which intended to carry on the same type of business. Of the gain from that sale, $233,000 was allocated to the rental items, the entire cost of which had been deducted by the company in the year of purchase as an ordinary and necessary …

Income Tax: Corporations--Incorporated Professional Service Organization Taxable As A Corporation; Kintner Regulations Held Invalid--Empey V. United States, Michigan Law Review

Michigan Law Review

Lawrence G. Empey, a lawyer, was employed by the Drexler and Wald Professional Company, an association of attorneys that had incorporated in 1961 pursuant to the Colorado Corporation Code and rule 265 of the Colorado Rules of Civil Procedure. Empey began his employment with Drexler and Wald in March 1965, and in November of the same year he acquired ten shares (ten per cent) of the outstanding capital stock of the corporation. On his 1965 federal income tax return, he reported income consisting of his salary as an employee of the company for ten months and ten per cent of …

(F) Reorganizations And Proposed Alternate Routes For Post-Reorganization Net Operating Loss Carrybacks, Michigan Law Review

Michigan Law Review

Section 368(a)(l)(F) of the Internal Revenue Code (Code) defines the least complex of all corporate reorganizations-commonly known as the (F) reorganization-as "a mere change in identity, form, or place of organization, however effected." Since 1921, when the (F) reorganization first appeared in a Revenue Act, a significant amount of judicial gloss has been appended to this simple definition. To qualify as an (F) reorganization, a reorganization must result in neither a change of shareholders nor a shift in proprietary interest, and there must be a continuation of the business in the pre-organization fields of activity, using essentially the same operating …

Income Tax--Capital Gains Tax--Meaning Of "More Than 80 Percent In Value Of The Outstanding Stock" Under Section 1239, Michigan Law Review

Michigan Law Review

The sale of property by a taxpayer to a corporation which he controls has been a frequently attempted method of tax reduction for more than thirty years. Such a transaction has the advantage of maintaining ownership of the property in virtually the same hands, while at the same time resulting in a substantial mitigation of tax liability. For instance, in the post-World War II period, when property values were generally increasing, a taxpayer could sell to his controlled corporation at a gain depreciable property with a basis lowered by adjustments for prior depreciation allowances. The gain was immediately taxable at …

Income Tax--Listing Abandoned Residence For Sale And Not For Rent Considered Sufficient To Convert To "Property Held For The Production Of Income"--Hulet P. Smith, Michigan Law Review

Michigan Law Review

Since 1941, Hulet Smith and his wife had lived in a large house in Arcadia, California, where Smith had been actively engaged in a real estate loan business. In 1959, Smith decided to retire and move to Pebble Beach, a distance of about 400 miles from Arcadia. He purchased a parcel of land in Pebble Beach and built a large expensive home, with the avowed intention of making this his permanent personal residence. In 1961, after severing all business and social connections in the vicinity of their old residence, Smith and his wife moved into their new home, taking virtually …

Income Tax--Recovered Property Previously Deducted Included In Gross Income In Year Of Recovery--Alice Phelan Sullivan Corp. V. United States, Michigan Law Review

Michigan Law Review

In 1989 and 1940 the corporate taxpayer claimed as charitable deductions the value of two parcels of realty which it had donated to a charitable organization subject to the condition that they be used solely for religious or educational purposes. Having decided not to use the gifts in the manner specified, the donee reconveyed them to the taxpayer in 1957. The taxpayer failed to reflect this recovery in its gross income for that year. The Commissioner of Internal Revenue, however, determined that under section 111 of the 1954 Internal Revenue Code (Code) the taxpayer's gross income reported in its 1957 …