Judicial Brief Example
| Citation: | Burnet v. Logan,
283 US 404 (1931), 75 L.Ed. 1143, 51 S.Ct. 550, 9 AFTR 1453, 2 USTC ¶736,
Ct.D. 351, X-1 CB 345; aff’g CA-2, 42 F.2d 193 (1931), 8 AFTR 11087; rev’g
12 BTA 586 (1928). |
|
| History: | S.Ct. and CA-2
for taxpayer; BTA for gov’t |
|
| Justice: | McReynolds |
|
| Facts: | The taxpayer sold
stock in a steel company that operated a mine under a long-term lease through
a subsidiary. The lease did not require minimum or maximum production tonnage
or any definite payments. In return for the stock, the taxpayer received
cash plus an obligation to annually receive a certain sum for each ton of
ore that the buyer mined. The government established a value for the obligation,
treated the transaction as “closed” on the sale date, and required
the gain to be estimated and taxed currently. The taxpayer did not consider
the obligation to make future payments as one with an ascertainable fair
market value and, thus, treated amounts received as nontaxable returns of
capital until the stock basis was fully recovered. |
|
| Issue: | When consideration
in a sale includes future payments having no ascertainable current value,
is gross income deferred until all capital is recovered? |
|
| Holding: | Yes, invested
capital is recovered before any gross income is recognized when consideration
in a sale includes future receipts with no ascertainable current value. |
|
| Reasoning: | Tax liability could ultimately be determined without relying on estimates and assumptions. When future payments are contingent and indefinite, they cannot be considered a cash equivalent. Neither do they have an ascertainable fair market value. In such situations, the transaction is “open,” and the taxpayer can recover invested capital before paying tax on an uncertain profit. |