Cowden v. Commissioner
Cowden v. Commissioner | |
---|---|
Court | United States Court of Appeals for the Fifth Circuit |
Full case name | Frank Cowden, Sr. and wife Gladys Cowden v. Commissioner of Internal Revenue |
Decided | April 12, 1961 |
Citation(s) | 289 F.2d 20 |
Court membership | |
Judge(s) sitting | Elbert Tuttle, Richard Rives, Warren Leroy Jones |
Case opinions | |
Majority | Jones, joined by a unanimous court |
Laws applied | |
Internal Revenue Code | |
Keywords | |
Cowden v. Commissioner, 289
Background
The taxpayers made a contract for oil and gas royalty payments with "bonuses" payable in two subsequent years. They next signed these contracts over to a bank reporting the amounts received as long term capital gains. The Commissioner disagreed as to their designation making them taxable as capital gains.
Procedural history
The Commissioner found the “bonus” payments to be taxable at the time they were created and assigned to the extent of their fair market value subject to depletion, computed by applying a four percent discount.
The Tax Court found the "bonus" payments to be taxable at their full face value in the year of the agreement and at ordinary income rates (no depletion). The taxpayer appeals this judgment.
Decision
Previous case law seemed to imply that only obligations represented by
- unconditional promise to pay;
- promisor is solvent when the note is delivered;
- assignable;
- not subject to set-off;
- readily marketable; and
- not too risky
When you have a negotiable instrument, you look at the above factors to determine if it is a cash equivalent. If the instrument IS a cash equivalent then it is taxable as if cash were received by the taxpayer instead of an obligation.
The court remanded the case to determine whether the “bonus” obligations were cash equivalents and therefore taxable in the year they were assigned.
See also
- Tax accounting
References
- ^ Cowden v. Commissioner, 289 F.2d 20 (5th Cir. 1961).
Further reading
- Donaldson, Samuel A., Federal Income Taxation of Individuals: Cases, Problems and Materials, Thomson/West, 2007, p. 364.
External links
- Text of Cowden v. Commissioner, 289 F.2d 20 (5th Cir. 1961) is available from: CourtListener Justia OpenJurist Google Scholar