INTRODUCTION TO TAX SCHOOL

INTRODUCTION TO TAX SCHOOL
Top 100 Cases Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) © Steven J. Willis 2006

Burnet v. Sanford & Brooks, 282 U.S. 359 (1931)
Sanford & Brooks stands for one important proposition: This proposition is conjunction with two other famous cases: North American Oil v. Burnet, 286 U.S. 417 (1932) U.S. v. Lewis, 340 U.S. 590 (1951). © Steven J. Willis 2006

Sanford & Brooks stands for one important proposition: This proposition is conjunction with two other famous cases: North American Oil v. Burnet, 286 U.S. 417 (1932) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. © Steven J. Willis 2006

Sanford & Brooks stands for one important proposition: This proposition is conjunction with two other famous cases: North American Oil v. Burnet, 286 U.S. 417 (1932) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. Another way of saying this is that the United States uses annual rather than transactional accounting. © Steven J. Willis 2006

Sanford & Brooks stands for one important proposition: This proposition is conjunction with two other famous cases: North American Oil v. Burnet, 286 U.S. 417 (1932) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. © Steven J. Willis 2006

Sanford & Brooks stands for one important proposition: This proposition is conjunction with two other famous cases: North American Oil v. Burnet, 286 U.S. 417 (1932) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. These two cases are also on the top 100 list. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. Note: The case arose very early in our tax system: the 16th Amendment authorizing the income tax became effective in 1913. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. The company actually reported the losses on its tax returns during © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. The company actually reported the losses on its tax returns during This reporting treatment was proper. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. Note: the company claimed the U.S. owed payment for the services equal to the losses. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest. ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest. ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. Both the taxpayer and the government agreed the interest was taxable in the year of receipt. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest. ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. Both the taxpayer and the government agreed the interest was taxable in the year of receipt. Depending on the company’s method of accounting plus various time value of money provisions, this may – or may not – be true today. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. The appellate court permitted exclusion of the recovery in But, it conditioned this opinion on the taxpayer amending the returns for to omit the prior expenses. © Steven J. Willis 2006

FACTS: Company did work for United States during Company had net losses during these years of $176,271.88 In 1916, the company sued the U.S. for the money. In 1920, it collected the $176, plus interest.1920: ISSUE: How should the company report the recovery? Is it income when received? Should the company amend the prior returns to remove the deducted losses? HOLDING: The $176, was income on receipt. The prior years correctly reported losses. Amendment of them would be inappropriate. But, the Supreme Court reversed the appellate court. © Steven J. Willis 2006

To Repeat: The Supreme Court required inclusion of the recovery in the year of receipt. Using an amended return to correct the problem violated the annual accounting system adopted by Congress. © Steven J. Willis 2006

To Repeat: The Supreme Court required inclusion of the recovery in the year of receipt. Using an amended return to correct the problem violated the annual accounting system adopted by Congress. Congress adopted an annual system, rather than a transactional system. © Steven J. Willis 2006

To Repeat: The Supreme Court required inclusion of the recovery in the year of receipt. Using an amended return to correct the problem violated the annual accounting system adopted by Congress. Congress adopted an annual system, rather than a transactional system. A transactional system could be Constitutional; however, that is not what Congress chose. It also would be cumbersome requiring returns for every transaction!!! © Steven J. Willis 2006

To summarize: When you hear of Sanford & Brooks you should associate the case with the general rule that ould also associate the case with transactional accounting and the notion that every year stands alone. Ideally, you would also associate the case with Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) U.S. v. Lewis, 340 U.S. 590 (1951). © Steven J. Willis 2006

To summarize: When you hear of Sanford & Brooks you should associate the case with the general rule that ould also associate the case with transactional accounting and the notion that every year stands alone. Ideally, you would also associate the case with Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. © Steven J. Willis 2006

To summarize: When you hear of Sanford & Brooks you should associate the case with the general rule that ould also associate the case with transactional accounting and the notion that every year stands alone. Ideally, you would also associate the case with Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. Another way of saying this is that the United States uses annual rather than transactional accounting. © Steven J. Willis 2006

To summarize: When you hear of Sanford & Brooks you should associate the case with the general rule that ould also associate the case with transactional accounting and the notion that every year stands alone. Ideally, you would also associate the case with Burnet v. Sanford & Brooks, 282 U.S. 359 (1931) U.S. v. Lewis, 340 U.S. 590 (1951). Every year stands alone. Ideally, you should also associate the case with North American Oil v. Burnet, 286 U.S. 417 (1932) and U.S. v. Lewis, 340 U.S. 590 (1951). © Steven J. Willis 2006

INTRODUCTION TO TAX SCHOOL

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