Hunley v. Commissioner

25 T.C.M. 355 (1966)

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Hunley v. Commissioner

United States Tax Court
25 T.C.M. 355 (1966)

Facts

James Hunley (plaintiff) was a prominent businessman who purchased stock in the life-insurance company State Life of Illinois (State Life) at a price below the stock’s market value. State Life sold Hunley the stock at the special price because it believed Hunley to be a “center of influence,” i.e., a prominent person in the community who could help State Life by recommending salespeople and suggesting prospects to buy either policies or stock from State Life. Hunley did not know that he was considered a center of influence, he never provided any assistance to State Life, he was not asked to provide any assistance to State Life, and he did not realize that he had purchased the stock at a special bargain price. The Commissioner of Internal Revenue (the commissioner) (defendant) assessed a deficiency in Hunley’s income taxes, asserting that the difference between the stock’s market price and the preferred price paid by Hunley should have been included in Hunley’s gross income. Hunley challenged the commissioner’s determination in United States Tax Court. Hunley argued that the bargain element of the stock purchase would constitute income to him only if he had rendered services or agreed to render services to State Life as consideration for receiving the bargain. The commissioner asserted that the bargain element was income to Hunley because State Life’s president had hoped to receive future assistance from Hunley in exchange for providing Hunley the lower stock price. The commissioner argued alternatively that the bargain element was includible in Hunley’s gross income because Hunley had been enriched by the bargain, and the enrichment constituted a taxable accumulation of wealth.

Rule of Law

Issue

Holding and Reasoning (Tannenwald, J.)

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