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.