Issue what is it income 1916 1917 or 1922 a tp wants

This preview shows page 42 - 45 out of 158 pages.

2.Issue: What is it income [1916, 1917, or 1922]?a.TP: wants income to be included in 1916 b/c the 1916 tax rate was really low (was higher in 1917 due to WWI)i.Argues that they had the money to use in 1917, but the litigation as looming and was not resolved until 19223.Held: It is income in 1917 b/c that was when it was paida.There needs to be some finalityb.PROF: TP has the cash to use as it sees fitiii.Lewis [1951]1.Facts: EE got a really big bonus but later found out that he was only entitled to ½ of it, so he was forced to pay a portion backa.1944: EE earned the bonus $b.1946: EE paid it backc.*Dramatic change in rate structures b/w the years
2.Issue: Does EE get a tax deduction when he returns his portion? When is it income?
5.Note: what happens to Lewis’s ER?
NOTE: Potential Options re: Claim of Right1.Exclude until all uncertainty is resolveda.Undermines H-S notion of econ income; potential for tremendous deferral (hugely pro-TP)2.Retrospectively determine right yeara.Potential closure problem for past years; too much uncertainty3.Use current info as “correctly” as possiblea.Admin problems/impracticality even though this is the econ accurate method4.*“Follow the money”- “claim of right” [this is option we go with]a.If you have control/dominion w/o restriction or future liability, then it ought to be a claim of right/included in incomeb.Practical and generally fair; important to remember Lewis – important to the evolution of this doctrinev.§ 1341(a)(1)-(4): Congressional Response to Lewis1.Follows the mechanics of Lewis2.Deduction for repayment; happens in the year the money has to be given backa.Restrictive b/c it addresses the Lewis fact pattern (has to be an initial unrestricted use of something and then you are giving it back)—narrowly tailoredi.But also addresses rate variations3.(a)(1): If item was included in GI for prior tax year b/c TP had unrestricted right to it; anda.(1) & (2) set up Lewis4. (a)(3): Deduction amount has to exceed $3k5. If (a)(1)-(3) are fulfilled, the tax imposedhas to be the lesser of (4) & (5) in the subsequent year43

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture