Tuesday, April 2, 2013

Burnet v. Logan case brief

Burnet v. Logan case brief summary
283 U.S. 404

SYNOPSIS:

Petitioner Commissioner of Internal Revenue sought certiorari review of a judgment from the Circuit Court of Appeals for the Second Circuit, which reversed an order that had determined income tax deficiencies on part of respondent taxpayer.

OVERVIEW:
-Respondent's mother had entered into a contract in which she sold her shares to a purchaser for cash and a fraction of the annual proceeds the purchaser thereafter made from ore extracted from the mine.
-From her mother's estate, respondent obtained the right to one-half of her mother's interest in the annual proceeds of the contract.
-The trial court concluded that the income tax deficiencies with respect to proceeds respondent had received from the contract were proper, but the lower appellate court reversed.

HOLDING:
-The Supreme Court concluded that it was impossible to determine with certainty the market value of the agreement.

ANALYSIS:
-Respondent had obtained the right to share in the indefinite proceeds of a contract.
-The Court explained that in order to determine gain or loss, and the amount of gain, if any, it had to withdraw from gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration.
-Respondent could not deduct from gross receipts a supposed loss represented by an outstanding note. -Conversely, a promise to pay indeterminate sums of money was not necessarily taxable income.

OUTCOME: The Court affirmed the judgment of the appellate court, which had reversed the tax deficiency, because it was impossible to determine with certainty the market value of the agreement from which respondent was receiving proceeds. Further, respondent had only obtained the right to share in possible proceeds. A promise to pay indeterminate sums of money was not necessarily taxable income.

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