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University of South Carolina School of Law
Quirk, William J.

Income Taxation
Fall 2006
Constitution Art 1 § 9: Direct taxes must be uniform (property in this instance) and apportioned by population. This is about an income tax
§         Needed agreement on value of property
Constitution Amendment 16: Incomes may be taxed without apportionment. The poorer states ratified first and thought they would be advantaged by that.
§1—progressive rates—higher dollars taxed at a higher rate. Also a flat tax and the regressive tax which taxes lower dollars at a higher rate. This is the same type of the SS tax.
SS contributes 800 billion (40% of total) of the 1.2 trillion accumulated annually.
§         64 % of all taxes are paid by people earning over $100,000. This is about 10% of the population.
§         Direct result of progressive tax
The contribution to SS by the top income earners is only small percentage
 IRC § 7201—any person who willfully attempts to evade any tax will be fined and possibly imprisoned. This also counts for corporations. 
Old Colony Trust v. Commissioner: Payment of one’s taxes for them constitutes additional gross income.
§         § 7201 would apply b/c the President was helping the officer try to evade his payment of taxes.
?—representing a coach who is getting a buyout clause by another institution. What do you tell the institution that wants to buy out the contract?
§         Loan to the coach? There is no income from loans, but that would essentially just spread out the obligation. What if the institution (Clemson) could forgive the note if the coach stayed for a number of years? Nope, still income after that time period b/c the coach got a big benefit.
§         Are personal services contracts assignable? No, the contract is b/n the original parties—unconscionable because so unexpected. 
O’Malley v. Commssioner: payment of one’s legal fees is gross income to a taxpayer
Joint and Several liability applies to a case(one may be responsible to pay for the actions of a group)— XYZ are members of a corp. There is a suit for $1 million against a corp, XYZ and A. A member of the corporation, A, who is a 10% shareholder pays $250,000 to settle. XYZ who have 90% interest are released from the suit in exchange. Is there a benefit (income) to XYZ and if so, how much?
§         Would Old Colony apply? Well…the group has not reached the point where they owe an obligation. The court held th

amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness;
(3) amounts received through accident or health insurance for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts (A) are attributable to contributions by the employer which were not includible in the gross income of the employee, or (B) are paid by the employer);
(4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service, or as a disability annuity payable under the provisions of section 808 of the Foreign Service Act of 1980; and
Murphy was given a total of $70,000 in compensatory damages; $45,000 for emotional distress and $25,000 for injury to professional reputation. No money was