Karns Prime & Fancy Food, Ltd. v. Commissioner
United States Court of Appeals for the Third Circuit
494 F.3d 404 (2007)
Karns Prime & Fancy Food, Ltd. (plaintiff) received a $1.5 million loan from its principal supplier in conjunction with a long-term supply agreement. The supplier agreed to forgive the annual loan payments if Karns kept up with its obligations under the supply contract. Karns treated the payment as a nontaxable loan and deferred paying taxes on it, but the tax commissioner treated $1.5 million as income to Karns instead of a loan, resulting in a tax deficiency over six years of $500,000. Karns petitioned the tax court arguing that the payment was a nontaxable loan. After the tax court affirmed the commissioner’s determination, Karns appealed to the Third Circuit.
Rule of Law
Holding and Reasoning (Sloviter, J.)
Concurrence (Ambro, J.)
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