Chapman v. United States
United States District Court for the District of Minnesota
527 F.Supp. 1053 (1981)
- Written by Kelsey Libby, JD
Facts
Chapman (plaintiff) was a cash-basis taxpayer. In 1973, Chapman purchased $30,000 of cattle feed from the Sun River Cattle Company (the company) and paid the company $15,000 towards the feed in cash. The remaining $15,000 was due and payable at a later time when certain lots of cattle were sold. In November 1973, Chapman gave the company a promissory note for $15,000 with a secured letter of credit from a bank in the same amount. The company never used the line of credit, and it expired in 1974. However, for 1973, Chapman deducted the full $30,000, representing the $15,000 paid in cash and the $15,000 letter of credit. Chapman also increased his income in 1974 by $15,000 because the line of credit expired unused at that time. The Internal Revenue Service (IRS) (defendant) disallowed $15,000 of the $30,000 deduction claimed by Chapman for the letter of credit in 1973. Correspondingly, the IRS decreased Chapman’s 1974 income by $15,000. Chapman filed suit to recover the full amount of the claimed deduction, and both parties filed for summary judgment.
Rule of Law
Issue
Holding and Reasoning (MacLaughlin, J.)
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