Perry v. Commissioner
United States Tax Court
T.C. Memo 2006-77, 91 T.C.M. 1031 (2006)
- Written by Joe Cox, JD
Facts
Kenneth David Perry (plaintiff) and his wife Linda reported long-term capital losses of $9,256.63 in 2001 and $60,641.96 in 2003. In both cases, the allowable capital-loss deduction for the year was $3,000.00, but the Perrys claimed deductions above that amount. The Commissioner of Internal Revenue (defendant) sent a notice of deficiency based on that overly large deduction. Perry then filed suit for a refund, claiming that the government was taxing income that did not exist and that such a tax violated Congress’s taxing power under the Sixteenth Amendment of the federal Constitution. Perry believed that he should be able to deduct the entire amount of recognized capital loss and argued that not allowing Perry to do so disallowed the tax as an income tax and thus made the tax subject to the requirement of apportionment, analogous to an excise tax. The federal government argued that Perry was taxed on income only to the extent the income was recognized, realized, and reported—thus, income that very much did exist. Further, income taxes were not subject to the apportionment requirement of the Sixteenth Amendment.
Rule of Law
Issue
Holding and Reasoning (Chabot, J.)
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