ACCT 417_Court Case Brief - Court Case Brief COMMu2019R V...

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Nicole PadgettFEDERAL INCOME TAX II| ACCT 417 7980 3/31/2019Court Case BriefCOMM’R V. SULLIVAN, 356 US 27
FACTSRespondent taxpayers received income from bookmaking establishments. The Tax Court found that the enterprises were illegal and held that amounts paid for wages and for rent could not be deducted from gross income because those deductions were for expenditures made in connection with illegal acts. The U.S. Court of Appeals for the Seventh Circuit reversed and allowed the deductions. The court granted certiorari.PROCEDURALHISTORYThe taxpayers received income from bookmaking establishments in Chicago,Ill. The Tax Court found that these enterprises were illegal under Illinois law, 2that the acts performed by the employees constituted violations of that law, and that the payment of rent for the use of the premises for the purpose of bookmaking was also illegal under that law. The Tax Court accordingly held that the amount paid for wages and for rent could not be deducted from gross income since those deductions were for expenditures made in connection with illegal acts. 15 CCH TC Mem. Dec. 23, 25 T. C. 513. ISSUEThe question was whether amounts expended to lease premises and hire employees for the conduct of alleged illegal gambling enterprises were deductible as ordinary and necessary business expenses.

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