Second Edition

See also Treasury Regulations § 118, 39.22(k)-1(d): ‘Except in cases of a designated amount or portion for the support of the husband’s minor children, periodic payments described in § 22(k) received by the wife for herself and any other person or persons are includible in whole in the wife’s income, whether or not the amount or portion for such other person or persons is designated.’

181^ The Tax Court states: ‘The only significant factual difference which distinguishes Leon Mandel, supra, (23 T.C. 81, aff’d (7 Cir., 1956, 229 F.2d 382) from the instant case is the designation of the ultimate payee. The substantive distinction is that whereas in the instant case petitioner’s former wife, Ada, owed a legal obligation to support her minor son, William, in the Mandel case the husband’s former wife owed no obligation to support her adult children. This distinction was pointed out by the Court of Appeals in the Mandel case as follows: ‘No legal obligation to support the children after they arrived at their majority was imposed upon *** (the wife). The payments in controversy made to her thereafter were for and on their behalf and represented no economic or financial gain or benefit to her. We conclude that they were not includible in her gross income under 22(k). ***”

182^ The tax rate in 1939 was 18 percent; in 1940, 24 percent.

183^ The rationale which supports the principle, as well as its limitation, is that the property, having once served to offset taxable income (i.e., as a tax deduction) should be treated, upon its recoupment, as the recovery of that which had been previously deducted. See Plumb, The Tax Benefit Rule Today, 57 Harv. L. Rev. 129, 131 n. 10 (1943).

184^ This opinion represents the views of the majority and complies with existing law and decisions. However, in the writer’s personal opinion, it produces a harsh and inequitable result. Perhaps, it exemplifies a situation “where the letter of the law killeth; the spirit giveth life.” The tax-benefit concept is an equitable doctrine which should be carried to an equitable conclusion. Since it is the declared public policy to encourage contributions to charitable and educational organizations, a donor, whose gift to such organizations is returned, should not be required to refund to the Government a greater amount than the tax benefit received when the deduction was made for the gift. Such a rule would avoid a penalty to the taxpayer and an unjust enrichment to the Government. However, the court cannot legislate and any change in the existing law rests within the wisdom and discretion of the Congress.

185^ The installment method does not apply to recognition of losses.

186^ ... as opposed to a Roth IRA.

187^ ... defined in § 223(d)(2)(A).

188^ A “future” entitles the holder to purchase the commodity in the future for a fixed price.

189^ One year is not more than one year.

190^ We defer altogether the definition of “capital gain net income.”

191^ A corporation may claim losses from the sale or exchange of capital assets only to the extent of its capital gains. § 1211(a).

192^ “Adjusted taxable income” equals: (taxable income) + (§ 1211(b) deduction) + (personal exemption deductions) − ((deductions allowed) − (gross income) [but not less than $0]). § 1212(b)(2)(B).

193^ For a spectacular application of this principle, see United States v. Generes, 405 U.S. 93 (1972).

194^ Section 11 imposes income taxes on corporations.

195^ ... and estates and trusts.

196^ I.e., those taxpayers whose modified adjusted gross income exceeds $250,000 in the case of taxpayers married filing jointly, half that amount in the case of married taxpayers filing separately, and $200,000 in the case of all other taxpayers – to the extent of hte4 excess. § 1411(b).

197^ “Ordinary income” is the income subject to the highest rates imposed on individual taxpayers. It includes gains from the sale or exchanges of non-capital and non-§ 1231 assets, offset by allowable losses on the sales of the same assets. §§ 64, 65.

198^ ... as modified in § 1(i) and as indexed for inflation, id.

199^ Taxpayers could engage in such systematic mismatching prior to 1962.

200^ Congress enacted § 1245 in 1962. Revenue Act of 1962, P.L. 87-834, § 13(a).

201^ Congress enacted § 1250 in 1964. Revenue Act of 1964, P.L. 88-272, § 231(a).

202^ “Disposition” is a broader term than “sale” or “exchange.” A corporation that distributes property to a shareholder has not sold or exchanged it, but has disposed of it. Such a disposition triggers a tax on the gain computed as if the corporation had sold the property to the shareholder. § 311(b). Some or all of that gain might be depreciation recapture.

203^ Actually, if the disposition is other than by sale, exchange, or involuntary conversion, gain taxable as ordinary income is measured by subtracting adjusted basis from the lesser of recomputed basis or the fmv of the property. § 1245(a)(1).

204^ This would include cases where section 1231 gains equal section 1231 losses.

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