Taxation-Federal Commons^™

Taxation-Federal Income Tax-Tax Avoidance By Use Of Preferred Stock ''Bail-Out", Raymond R. Trombadore S.Ed.

Michigan Law Review

In 1946 petitioner received a pro-rata dividend of preferred stock of the distributing corporation, paid on its voting common, the only class of stock then outstanding. The dividend stock was immediately sold to certain insurance companies pursuant to prior informal agreements between the insurance companies, the corporation, and the shareholders. Provision was made for the mandatory redemption of the preferred stock over a period of eight years. The transactions were the culmination of a series of negotiations intended to eliminate the large accumulated surplus of the corporation, in order to avoid the imposition of a penalty surtax thereon. In reporting …

Taxation - Federal Income Tax - Deductibility Of Expenses Incurred By Attorney In Attending Tax Institute, John E. Riecker S.Ed.

Michigan Law Review

Petitioner was a member of a firm of lawyers engaged in general practice in Binghamton, New York. The firm did enough work in federal taxation to warrant petitioner's specializing in this field, and his partners relied upon him to keep abreast of all significant developments in tax law. Petitioner attended the Fifth Annual Institute on Federal Taxation, conducted in New York City under the sponsorship of New York University and designed exclusively for practitioners and specialists in the tax field. He incurred expenses for travel, board, lodging, and tuition, all of which he deducted as ordinary and necessary business expenses …

Taxation - Federal Income Tax - Exchange Of Debentures For Preferred Stock As Tax-Free Reorganization, Raymond R. Trombadore S.Ed.

Michigan Law Review

Plaintiff held common and preferred stock of the Gulf States Paper Corporation. In 1942 plaintiff received new debentures in exchange for his preferred stock, pursuant to a plan for the recapitalization of the company whereby the entire 25,000 shares of previously outstanding preferred stock (including plaintiff's 208 shares) were exchanged for new debentures of like value. In 1950 the Commissioner assessed an income tax deficiency against plaintiff, determining that the redemption and cancellation of the preferred stock represented a distribution essentially equivalent to the distribution of a dividend and taxable under section 115(g)(1) of the Internal Revenue Code. Plaintiff sued …

Taxation - Federal Income Tax - Deductibility By An Employee Of Sum Paid In Settlement Of Claim Arising From His Operation Of Automobile Used In Company's Business, Richard B. Barnett S.Ed.

Michigan Law Review

Petitioner and one Elkins were employed by a corporation which they had organized to engage in the electrical contracting business. They furnished their own automobiles to transport men and material from job to job, and were reimbursed by the corporation for operating expenses. The corporation also paid for insurance and repairs of the automobiles. While Elkins was using petitioner's car to drive two employees to a job in progress, a collision occurred causing personal injuries to the two employees, who recovered a judgment against petitioner which he finally settled by payment of $4,000 in excess of the amount of the …

Taxation - Federal Income Tax - Exemplary Damages As Taxable Income To Recipient, Eliot Gerber S.Ed.

Michigan Law Review

Petitioner, a motion picture exhibitor, sued certain motion picture distributors under the private remedy provisions of the federal antitrust acts. Judgment was had against the distributors for treble damages. Upon failure of petitioner to report as income the amount recovered above its actual loss of profits, the Commissioner determined deficiencies in petitioner's income tax. Held, the amount recovered above actual loss of profits was exemplary damages and not taxable income. William Goldman Theatres, Inc., 19 T.C. 637 (1953).

Taxation - Federal Income Tax - Consequences To Seller And Buyer Of Covenant Not To Compete, Richard B. Barnett S.Ed.

Michigan Law Review

The owners of the entire capital stock of a newspaper business received an offer of $1,000,000 for their stock and a covenant not to compete with buyers for ten years. After the offer was accepted and the contract of sale drawn up, buyer asked for a clause in the contract evaluating the covenant not to compete at $50 a share and the stock at $150 a share in order to help him taxwise. The clause was accepted with little discussion. The sellers reported the entire proceeds of the sale on their income tax returns as long term capital gain, but …

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 …

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-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 …

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.

Taxation-Federal Income Tax-Deductibility Of Legal Fees Incurred In Contesting Gift Tax Deficiency, Richard B. Barnett S.Ed.

Michigan Law Review

Petitioner gave shares of stock in a closely held family corporation to his wife and children. After paying the federal gift tax, he was notified by the Commissioner of a deficiency of $145,276. The case was eventually settled by payment of $15,612. In this controversy petitioner incurred legal expenses which he sought to deduct on his income tax return under section 23(a)(2) of the Internal Revenue Code. When his claim was disallowed by the Commissioner, this suit was brought for refund. Held, on certiorari, this expenditure was not "for the production or collection of income'' nor incurred in the …

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, …

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-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 …

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 …

Taxation-Federal Income Tax-Sale Of Unmatured Crop As Capital Gain Or Ordinary Income, Alan C. Boyd S. Ed.

Michigan Law Review

Petitioner sold a farm owned over six months upon which was a growing but unmatured wheat crop. When taxed upon the amount of sale price apportionable to the crop as ordinary income, he contended that under state law the land was a capital asset and that the growing crop was an inseparable part thereof. He concluded, therefore, that the entire amount should have been taxed as a capital gain. The purchaser testified that he had considered the crop to be worth about $8,500 and that he had deducted this amount in his own tax return as cost of the crop. …

Taxation-Federal Income Tax-Accounting For Money Mistakenly Received Under A Claim Of Right, Allan Neef

Michigan Law Review

The plaintiff taxpayer, as the general manager of a manufacturing corporation, received a bonus of approximately $22,000 for the 1944 calendar year, pursuant to a percentage-of-net-profits bonus arrangement. In 1946, a state court found that this bonus had been erroneously computed, and that the terms of the agreement only called for a payment to the plaintiff of about $11,000 for the prior year. As a result of this adverse judgment, the plaintiff repaid the excess to the corporation, and filed an amended tax return and a timely claim for a refund of the prior tax on such amount with the …

Smith: Personal Life Insurance Trusts, Willard H. Pedrick

Michigan Law Review

A Review of PERSONAL LIFE INSURANCE TRUSTS. By Allan F. Smith.

Taxation-Proposed Changes In The Tax Treatment Of Foreign Income, Donald D. Davis S.Ed.

Michigan Law Review

The United States has the power to tax the income of its citizens and domestic corporations even though that income is earned in a foreign country. When it is recognized that income derived abroad generally incurs tax liabilities to foreign governments as well, it immediately becomes apparent that the American businessman doing business abroad may, absent some sort of relief provisions, easily be the victim of double taxation. Relief has taken a number of forms. Income derived by American corporations in certain geographical areas is under proper circumstances wholly or partly exempt from federal income taxation. Thus, citizens and corporations …

State Taxation Of Interstate Commerce--What Now?, Robert C. Brown

Michigan Law Review

Perennial indeed have been the problems of state taxation affecting interstate commerce and the problems of intergovernmental taxation as between state and federal governments. The two problems are quite similar except that the intergovernmental problem is mutual while the interstate problem affects only state taxing power. But both are alike in that the restrictions on the taxing power are entirely judicial, and that while some restrictions are desirable they must themselves be limited lest we have not regulation but destruction of taxing power.

The intergovernmental problem is virtually settled with the allowance of non-discriminatory taxation on both sides, except as …

Freedom From Uncertainty In Income Tax Exemptions, Maurice Finkelstein

Michigan Law Review

Exemptions from obligations to government are as old as Scripture. It is not strange, therefore, that the public interest in humane government should dictate numerous exemptions from the income tax levy, particularly when one considers that the income tax has long ceased to be simply a revenue producing vehicle. The regulation of inflation or deflation, the control of corporate financial structures, the distribution of wealth, all these and many other concern of government have entered into the formula of our income tax laws. The selection of those who are to be benefited by the tax exemption is, of course, made …

Taxation--Income Tax--Family Partnerships--Application Of The Tower-Lusthaus Doctrine, Earl R. Boonstra S.Ed.

Michigan Law Review

Respondent and his four sons formed a partnership in 1939. The sons contributed cattle and property purchased from respondent who accepted their notes in return. Subsequently, part of the notes were forgiven and part paid from shares of the firm proceeds. A firm bank account was opened on which all members could draw. It was planned that all the sons would render substantial services to the partnership. However, the plan was disrupted when the two eldest were called to military duty, and the two minor sons continued their education. A partnership return was filed for 1940. The Commissioner determined a …

Taxation-Federal Income Tax-Taxability To Nonresident Alien Of Lump Sum Payments For Copyright, Myron J. Nadler S.Ed.

Michigan Law Review

Taxpayer, a nonresident alien author not engaged in trade or business within the United States, delivered certain literary works to American publishers under agreement whereby the latter were to copyright and publish these stories and reassign to the taxpayer after publication all rights except the American serial rights. Lump sum payments for each story were received during the years 1938 and 1941. No tax was paid on these amounts and a deficiency was assessed on the ground that they constituted royalties received for the use of United States copyrights and were taxable as ordinary income. The circuit court of appeals …

Taxation-Income Tax-Realization Of Income By Corporation In Distribution Of Notes To Shareholders, David H. Armstrong S. Ed.

Michigan Law Review

A corporation charged off notes as worthless prior to 1942. Anticipating future collections on the notes, the corporation distributed them as a dividend in kind. The commissioner determined that the amount collected subsequent to distribution was taxable to the corporation. The Tax Court held that no income was realized by the corporation. On appeal, held, reversed. This was not a distribution of capital assets but rather an assignment of anticipated income. Commissioner v. First State Bank of Stratford, (C.C.A. 5th, 1948) 168 F. (2d) 1004, certiorari denied, 335 U.S. 867, 69 S.Ct. 137 (1948).

Attorneys -Taxation - Unauthorized Practice Of Income Tax Law By Certified Public Accountants, Charles D. Bell S. Ed.

Michigan Law Review

The accepted law in the United States is that laymen may not engage in the practice of law. However, the enigma of what constitutes the practice of law has plagued laymen, lawyers and the courts for many years. Attempts to find the answer have engendered intense friction between various professional groups, each arguing that its jurisdiction extends further than the other admits. The greatest animosity has developed between lawyers and certified public accountants in the dispute as to their respective functions in the income tax field.

Tax Practitioners Forum, Michigan Law Review

Michigan Law Review

A Review of TAX PRACTITIONERS FORUM

Taxation-Income Tax-Deductions For Alimony Payments Made Under Voluntary Agreement Of Separation, William R. Hewitt S. Ed.

Michigan Law Review

Taxpayer and his wife voluntarily entered into a written agreement of separation. Pursuant to the agreement, taxpayer made periodic payments to his wife in discharge of his legal obligation of support. In his income tax return for 1943, taxpayer took the amount of tlie payments made for that year as a deduction from gross income under the authority of section 23(u) of the Internal Revenue Code. The commissioner disallowed the deduction and determined a tax deficiency. Upon petition to the Tax Court for a redetermination of the deficiency, the commissioner was upheld. On appeal, held, affirmed. Only alimony payments …

Stanley And Kilcullen: The Federal Income Tax: A Guide To The Law., Michigan Law Review

Michigan Law Review

A Review of THE FEDERAL INCOME TAX: A GUIDE TO THE LAW. By Joyce Stanley and Richard Kilcullen.

Taxation-Income Tax-Validity Of Family Partnership Where Partner's Services Are To Be Performed In Future, Daniel W. Reddin, Iii S.Ed.

Michigan Law Review

In 1939, petitioner sold certain ranch properties and half of his herd of blooded cattle to his four sons, accepting their notes in return. A firm consisting of petitioner and his sons was then formed, and a bank account was opened upon which any of the members of the firm could draw. Two of the sons were minors, but all were ranch-reared and experienced in cattle raising. The sons paid part of the notes with their shares in the proceeds from firm sales, and petitioner forgave the rest. Military duty disrupted the plan by which all the sons were to …