Monday, April 29, 2013

Raytheon Production Corporation v. Commissioner case brief

Raytheon Production Corporation v. Commissioner case brief
144 F.2d 110

CASE SYNOPSIS: Petitioner corporation sought review from a judgment of the Tax Court of the United States, holding that an amount received in settlement of a federal antitrust suit for damages was taxable income.

FACTS: The corporation brought suit alleging that a the government conspired to destroy its established business, and large and valuable good will in interstate commerce, which were totally destroyed. The antitrust suit and a counterclaim for non-payment of royalties were settled for a cash payment in favor of the corporation, but the amount paid was not allocated between patent license rights and settlement of the suit. The corporation treated most of the settlement as a non-taxable return of capital, but the government determined the entire settlement sum was taxable income. The court found the recovery for destruction of the business and good will represented a return of capital. However, the court also found that the corporation's conversion of property into cash meant that compensation for loss of good will in excess of its cost basis would be gross income to the corporation. The corporation was the result of a series of tax-free reorganizations; there was no evidence of its original predecessor's basis in good will. Since the amount of any nontaxable capital recovery could not be ascertained, the entire settlement amount was taxable income.

CONCLUSION: The court affirmed the judgment.
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