| Amend v. Commissioner | |
|---|---|
 | |
| Court | United States Tax Court |
| Full case name | J. D. Amend v. Commissioner of Internal Revenue, et al. |
| Decided | August 8, 1949 |
| Citation(s) | 13 T.C. 178 |
| Court membership | |
| Judge(s) sitting | Eugene Black |
| Case opinions | |
| Decision by | Black |
| Laws applied | |
| Internal Revenue Code | |
| Keywords | |
Amend v. Commissioner, 13 T.C. 178 (T.C. 1949) [1] is a United States Tax Court decision concerning the timing of the realization of gains. [1]
Petitioners, a husband and wife, were farmers who had contracted to sell an amount of wheat to a purchaser in August 1944. Per the terms of the sale contract, payment for the wheat was not made until January 1945. Petitioners, who used the cash method of accounting, reported gains on the sale of wheat in 1945, when the money was received. The tax commissioner, however, determined that petitioners had an unqualified right to payment as of the delivery of the wheat in August 1944, and should be considered to have realized gains on the sale in the year 1944. Petitioners appealed this decision. [1]
The issue before the court was the factual question of whether the doctrine of constructive receipt should apply to petitioners. This doctrine holds that a taxpayer is subject to tax in the year that he or she gains unfettered control of when items of income will or should be paid. Commissioner held that the Amends had constructively received payment for the wheat in August because, in fact, payment was theirs for the taking any time between August and January. Petitioners argued that they did not, under the contract or in practice, have the ability to demand payment before 1945. [1]
The court found that the doctrine of constructive receipt was inappropriate because the contract governing the sale of the wheat was a bona fide, arm's length transaction and petitioners did not have any contractual or practical ability to take control of the payment until 1945. [1]
Petitioners in Amend recognized gain when they received the payment for the wheat and not when they received the promise of eventual payment, because they used the cash method of accounting. Not all businesses internally recognize gains when payment is actually made; those who use the accrual method of accounting would have recognized the gain in 1944 when they provided the good for which they would have been paid in the future. The U.S. Tax Code allows taxpayers to use whichever method of accounting they prefer, and to be taxed on gains when those gains are recognized internally. [2] [3]
For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.
A structured sale or structured installment sale, is a special type of installment sale pursuant to the Internal Revenue Code. In an installment sale, the seller defers recognition of gain on the sale of a business or real estate to the tax year in which the related sale proceeds are received. In a structured sale, the seller is able to pay U.S. Federal income tax over time while having the seller's right to receive those payments guaranteed by a high credit quality alternate obligor. This obligor assumes the buyer's periodic payment obligation. Transactions can be arranged for amounts as small as $100,000.
For federal income tax purposes, the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received gross income. A taxpayer is subject to tax in the current year if he or she has unfettered control in determining when items of income will or should be paid. Unlike actual receipt, constructive receipt does not require physical possession of the item of income in question.
Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. In 1979, this treatment was expanded by the courts to include non-simultaneous sale and purchase of real estate, a process sometimes called a Starker exchange.
Crane v. Commissioner, 331 U.S. 1 (1947), was a case heard before the United States Supreme Court concerning the value, for tax purposes, of inherited property with a nonrecourse mortgage encumbering it. According to Boris I. Bittker, Crane "laid the foundation stone of most tax shelters."
Hornung v. Commissioner is a case heard by the United States Tax Court in 1967.
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Cowden v. Commissioner, 289 F.2d 20, outlined the factors used to determine whether something received is a cash equivalent, in other words, whether something received is taxable when it was received or when it was assigned. The court observed two main doctrines in determining when something is taxable. The court relied on the doctrines of constructive receipt and cash equivalence while reiterating that substance rather than form should control income tax laws.
The installment sales method is one of several approaches used to recognize revenue under the US GAAP, specifically when revenue and expense are recognized at the time of cash collection rather than at the time of sale. Under the US GAAP, it is the principal method of revenue recognition when the recognition occurs subsequently to the sale.
The United States Tax Court decided two cases, both titled Veit v. Commissioner, in 1947 and 1949. These cases deal with the doctrine of constructive receipt. In both cases, the taxpayer was an executive vice president of a corporation. He was entitled to a fixed salary plus a bonus of 10% of the corporation's profits for the years 1939 and 1940, with the bonus to be paid in 1941. However, his contract was revised in November 1940 to provide that the bonus from the 1939 profits would be paid in 1941, and the bonus from the 1940 profits would be paid in 1942.
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Artnell Company v. Commissioner, 400 F.2d 981 is a decision by the 7th Circuit Court of Appeals, in which the court, distinguishing from the holding in Schlude v. Commissioner, held that accrual method taxpayers are not required to include prepayments in gross income when there is certainty as to when performance would occur.
Davis v. Commissioner, T.C. Memo. 1978-12 (1978), was a case in which the United States Tax Court held that in order to have constructive receipt, a taxpayer must have notice of the attempt to transfer funds to the taxpayer.
Warren Jones Company v. Commissioner of Internal Revenue, 524 F.2d 788 was a taxation decision by the United States Court of Appeals for the Ninth Circuit.
Surrogatum is a thing put in the place of another or a substitute. The Surrogatum Principle pertains to a Canadian income tax principle involving a person who suffers harm caused by another and may seek compensation for (a) loss of income, (b) expenses incurred, (c) property destroyed, or (d) personal injury, as well as punitive damages, under the surrogatum principle, the tax consequences of a damage or settlement payment depend on the tax treatment of the item for which the payment is intended to substitute.
Farid-Es-Sultaneh v. Commissioner, 160 F.2d 812 is a United States federal income tax case. It is notable for the following holding:
Inaja Land Co., Ltd. v. Commissioner, 9 T.C. 727 (1947) was a United States income tax case which discussed whether, and how much, basis the taxpayer could recover to offset a gain from compensation from the government for an easement on his land. HELD:
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