Taxation-Federal Commons^™

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-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 …

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. …

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 …

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.

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).

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 …

Tax Practitioners Forum, Michigan Law Review

Michigan Law Review

A Review of TAX PRACTITIONERS FORUM

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 …

Taxation-Income Tax-Taxable Persons--Assignment Of License Royalties, J. R. Mackenzie S.Ed.

Michigan Law Review

X contracted with a corporation controlled by him for the manufacture of machines on which he held patents. No minimum was established with respect to production or the payment of royalties. The contracts were terminable by either party upon notice, and X was free to make similar contracts with other manufacturers. X assigned all his interest in the contracts and exclusive title and power over the royalties to his wife, who thereafter received all payments and reported them as her income. The Tax Court ruled that since X could cancel the contracts directly, and could indirectly control the contracts through …

The Revenue Act Of 1948-: Federal Estate And Gift Taxation, Milton D. Solomon

Michigan Law Review

The community property system has always been a thorn in the side of the federal tax structure. The theory that husband and wife have equal, vested, undivided one-half interests in property held by them as tenants in community, when given effect for federal tax purposes, has resulted, because of our system of graduated rates, in substantial income, estate and gift tax advantages in favor of residents of community property states over their neighbors in non-community property states. Attempts to change this situation as to federal income taxation proved uniformly unsuccessful. However, success was achieved in the field of federal estate …

Taxation-Federal Income Tax-Claim For Refund-Statute Of Limitations, Samuel N. Greenspoon S.Ed.

Michigan Law Review

The commissioner determined that a deficiency existed in the taxpayer's income tax for 1938. This deficiency assessment was paid in 1941. More than three years later the taxpayer filed a claim for refund which was rejected by the commissioner on the ground that it was barred by the two year limitation period of section 322 (b) (1) of the Internal Revenue Code. The taxpayer then brought suit in the district court contending that the four year limitation period of section 3313 of the code was applicable. The district court sustained the taxpayer, and the judgment was affirmed by the circuit …

Kennedy: Federal Income Taxation Of Trusts And Estates, Michigan Law Review

Michigan Law Review

A Review of FEDERAL INCOME TAXATION OF TRUSTS AND ESTATES. By Lloyd W. Kennedy.

Significant Developments In The Law Of Federal Taxation, 1941-1947: Ii, Paul G. Kauper

Michigan Law Review

The 1941 Revenue Act carried forward the rather complex normal tax structure prescribed by the 1940 Revenue Act and in addition introduced a corporate surtax rate schedule. The normal tax rates were increased to absorb the 10% defense tax previously imposed as a separate tax and also a very slight increase in the rates applicable to corporations with a normal-tax net income of less than $38,461.54. As so altered the normal tax amounted to 24% in the case of corporations having normal-tax net income over $38,461.54, and in the case of corporations having no more than this amount of normal-tax …

Res Judicata-Federal Income Tax Cases-Effect Of Past Decision As To Liability For Future Years, Margaret Groefesma

Michigan Law Review

This action was brought by the United States Government to compel the application of rental sums, due semi-annually by the Western Union Telegraph Company, as lessee, to the Northwestern Telegraph Company, as lessor, to the payment of the lessor's income tax indebtedness for the years 1927-1941. In a prior suit between the same parties for application of other rental sums, due under the same lease, to the lessor's income tax liability for the years 1917-1922, it was determined by the Circuit Court of Appeals of the Second Circuit that the government could not reach these rentals because by the terms …

Taxation - Federal Income Tax - Capital Gain On Sale Of Partnership Interest, Herbert Sott

Michigan Law Review

In 1936, a taxpayer sold his interest in a partnership the assets of which were mainly acquired subsequent to his entering the partnership in 1932. The government contended that the taxpayer acquired and disposed of an interest in specific partnership assets and that the period for determining the capital gains percentages was properly measured from the date of acquisition of the specific capital assets. In his suit for refund on part of the tax thus computed, the taxpayer claimed that the partnership was a separate juristic entity, that his interest therein was an intangible capital asset, and that the period …

Taxation - Federal Gift Tax - Integration With Income Tax, Katherine Kempfer

Michigan Law Review

Beck in 1935 created an irrevocable funded insurance trust of $172,000 in securities together with seven policies of insurance on his life. The income from the securities was to be applied to pay the premiums on the policies and any surplus was to be distributed to his wife and daughter. At grantor's death the proceeds of the policies were to be added to the corpus of the trust and all income was to go to the same beneficiaries for life with remainders over. There was no possibility of reverter in the grantor and no right to alter, modify or revoke …

Taxation Of Annuity Contracts Under Federal Income Tax, Robert Meisenholder

Michigan Law Review

A number of questions dealing with the taxability of commercial annuity policies under death tax statutes have received judicial consideration. By contrast, only a few questions dealing with the taxability of these contracts under income tax laws have been raised before the courts. But the income tax problems are equally important in terms of tax liability. Moreover, they will in the future assume an even larger significance in view of the large number of annuity contracts of various types which have been issued and are now being offered by insurance companies. Accordingly some explanation of these problems is warranted.