SCOTUS Reports

Tag: Taxpayer Volition

  • льщвсььтсо. v. Commissioner, 21 T.C. 679 (1954): Constructive Receipt and Taxpayer Volition

    льщвсььтсо. v. Commissioner, 21 T.C. 679 (1954)

    A taxpayer cannot avoid income recognition in a particular year when the only impediment to receiving income is their own volition, even if they are also a director of the corporation declaring the dividend.

    Summary

    The Tax Court held that a taxpayer constructively received dividend income in the year the dividend was declared, even though he stipulated that his check should be mailed to him and received the check in the following year. The court reasoned that the taxpayer, as a director and stockholder, had the power to receive the dividend when declared and that delaying receipt was solely due to his own volition. The other stockholder received and cashed their dividend check in the year the dividend was declared.

    Facts

    The taxpayer was a director and stockholder of a corporation. The corporation declared a dividend. The taxpayer stipulated that his dividend check would be mailed to him. The other stockholder received and cashed their dividend check in the year the dividend was declared. The taxpayer received his dividend check in the following year and argued that it should be taxed in that later year.

    Procedural History

    The Commissioner of Internal Revenue determined that the taxpayer should have included the dividend income in the year the dividend was declared. The taxpayer petitioned the Tax Court for a redetermination. The Tax Court upheld the Commissioner’s determination.

    Issue(s)

    Whether a taxpayer constructively receives income in a particular tax year, when the only barrier to receiving the income is the taxpayer’s own volition?

    Holding

    Yes, because the taxpayer’s own volition was the only thing preventing him from receiving the dividend check when it was declared. The other stockholder received their check in the earlier year, so it was illegal and discriminatory for the taxpayer not to be able to receive their check as well.

    Court’s Reasoning

    The court relied on the doctrine of constructive receipt, which prevents taxpayers from choosing the year in which to report income by simply choosing the year in which they reduce it to possession. Citing Ross v. Commissioner, the court emphasized that the Treasury may tax income when the only obstacle to the taxpayer’s possession of the income is the taxpayer’s own volition. The court distinguished Avery v. Commissioner, which held that a corporation’s policy could control the timing of dividend payments, because, in the present case, it was the taxpayer’s own action preventing the check from being delivered to them. The other stockholder received their check during the year the dividend was declared and cashed it. It was therefore illegal for the taxpayer to have their check delivered later. The court noted that the taxpayer had the power to sign checks, further supporting the conclusion that he could have received the dividend when declared.

    Practical Implications

    This case reinforces the principle that taxpayers cannot deliberately manipulate the timing of income recognition for tax advantages. It highlights the importance of examining whether a taxpayer’s actions, rather than external restrictions, are the primary reason for delayed receipt of income. The case serves as a reminder that the constructive receipt doctrine can apply even to stockholders who are also corporate directors, particularly when there is evidence that the taxpayer could have accessed the funds earlier. This case is often cited in situations where taxpayers attempt to defer income recognition through self-imposed limitations or arrangements, and it underscores the importance of demonstrating a genuine corporate restriction on the availability of funds rather than a taxpayer’s voluntary choice.

  • Frank W. Kunze v. Commissioner, 19 T.C. 29 (1952): Constructive Receipt Doctrine and Taxpayer Volition

    Frank W. Kunze v. Commissioner, 19 T.C. 29 (1952)

    A taxpayer cannot avoid recognizing income in a particular year by voluntarily arranging to delay actual receipt when the funds were otherwise available without restriction.

    Summary

    The Tax Court held that a taxpayer constructively received dividend income in the year the dividend was declared, even though he arranged for the check to be mailed to him in the following year. The court reasoned that the taxpayer, as a director of the closely held corporation, had the power to receive the dividend check without restriction in the year it was declared and his voluntary decision to delay receipt did not prevent constructive receipt. The court distinguished Avery v. Commissioner, emphasizing that the delay was due to the taxpayer’s own volition, not a binding corporate restriction.

    Facts

    Frank W. Kunze was a stockholder and director of a closely held corporation. In December, the corporation declared a dividend. Kunze arranged for his dividend check to be mailed to him in January of the following year. The other stockholder received and cashed their dividend check in December. Kunze argued that he should not be taxed on the dividend income until the year he actually received the check.

    Procedural History

    The Commissioner of Internal Revenue determined that Kunze constructively received the dividend income in the year the dividend was declared. Kunze petitioned the Tax Court for a redetermination of the deficiency.

    Issue(s)

    Whether the taxpayer constructively received dividend income in the year the dividend was declared when he voluntarily arranged for the check to be mailed to him in the following year.

    Holding

    Yes, because the taxpayer’s own volition was the only thing preventing him from receiving the check in the year it was declared, and the corporate intent did not interfere with his access to the funds.

    Court’s Reasoning

    The court relied on the doctrine of constructive receipt, which prevents taxpayers from choosing the year in which to report income merely by choosing the year in which to reduce it to possession. The court distinguished Avery v. Commissioner, where a binding corporate policy dictated the timing of dividend payments. In Kunze’s case, the court found that the restriction on receiving the dividend check was due to Kunze’s own voluntary arrangement. The court emphasized that the other stockholder received and cashed their dividend check in December, indicating that there was no corporate policy preventing Kunze from doing the same. The court stated, “It was only the petitioner’s own ‘volition’ which thus stood between him and the receipt and collection of his check. Its availability to him, legally and actually, cannot seriously be questioned.” The court also noted that withholding Kunze’s check while paying the other stockholder would be a discriminatory act, which the court could not presume to be the corporation’s intent.

    Practical Implications

    This case clarifies the boundaries of the constructive receipt doctrine. It emphasizes that a taxpayer cannot intentionally postpone receiving income to defer tax liability when the income is readily available to them. The case is particularly relevant for taxpayers who are also in control of the entity distributing the income, such as shareholders or directors of closely held corporations. This case underscores the importance of demonstrating a legitimate, non-tax-motivated reason for delaying receipt of income. Later cases have cited Kunze to distinguish situations where a taxpayer’s control over the timing of income receipt is limited by genuine restrictions imposed by a third party or by the nature of the transaction itself. It serves as a reminder that the IRS scrutinizes arrangements that appear to be designed solely to manipulate the timing of income recognition.