Re: Dale, your only Corporations have income is a loser also.

Dale sez:""by Dale Eastman <dalereastman@xxxxxxxxxxxxxx> Oct 27, 2005 at
07:22 PM


Sorry Mr. Macdonald,

These cases you cite, of lower court reversals of the supreme court
cases I cite are illegal.

""

Really Dale, what reversals? The Supreme Court cases you cite (or rather,
the cases you've cited and "attempted" to analyse on your too-cute
webpage) do not, in any way, shape, or form, stand for the propositions
you think they do.

Merchant's Loan & Trust v. Smietanka - concluded that earlier Supreme
Court cases had adopted a uniform definition of "income," which definition
was set forth in Eisner v. Macomber as the gain derived from capital,
labor, or from both combined, including profit from the sale or exchange
of capital assets.

Now, first point - Mrs. Macomber was, guess what, an individual (or as you
like to put it, a natural person). Thus, it must be the case that, as far
as the Eisner v. Macomber Court was concerned, the definition of "income"
was independent of the nature of the person alleged to have derived that
"income."

Second point - the very same exact 9 Justices who rendered the decision in
Merchant's Loan & Trust also rendered two decisions concerning the taxable
income of, can you guess, two individuals, Messers. Walsh and Goodrich.
That very same Court applied the same definition in Walsh v. Brewster and
Goodrich v. Edwards that it applied in Merchant's Loan & Trust, namely,
that income is the gain derived from capital, labor, or from both
combined, including profit from the sale or exchange of capital assets.
Not only that, but they did so with an explicit cross-reference to
Merchant's.

Therefore, it cannot be the case that the definition of "income" has any
dependence on the nature (corporate or natural) of the person deriving the
alleged "income."

This can be quite easily seen when one actually goes back and reads (and
understands) what was going on in Stratton's Independence (from whence the
Eisner v. Macomber Court drew its definition of "income," with the
addition of the explicit reference to capital assets).

The task of the Court in Stratton's Independence was two-fold, first to
determine if the plaintiff was a member of the class of persons subject to
the tax, and second to determine what the measure of the tax was,
primarily to determine if the sale proceeds of the mined ore were included
in that measure.

These are two analytically distinct issues, namely:

(1) Who is being taxed (and is the plaintiff among them)?

(2) What is the amount of the tax based on (and is this particular item
included in that base)?

Thus, since the class of persons subject to tax in the Corporation Tax Act
of 1909 were only corporations engaged in business in the U.S., the Court
had to first analyze whether the plaintiff was engaged in business - that
is, whether the act of mining gold from your own property was either (a)
just the conversion of your own capital from one form to another - and
hence not a business because not generating any profits, or (b) the sort
of economic activity from which persons engaged in it would expect to
obtain a gain on the capital and labor they invested in the activity - and
hence "business activity." The Court concluded that because the activity
of mining was closely analogous to manufacturing - which was undeniably a
"business" - and since people who engage in mining generally expect to
earn a profit on it (that is, to derive gain from their investment), the
Court concluded that the plaintiff was a corporation engaged in business
and thus included in the class of persons subject to the tax.

Second, leveraging off of its discussion under the first issue, the Court
noted that it had already determined that the activity of mining generally
produces, for those engaged in it, gains derived from the capital and
labor invested therein, and decided that the sale proceeds of the mined
gold was, in fact, the sort of gain that any person engaged in mining
would expect to derive. Thus, the sale proceeds were "income" in that
they were gains derived from the use of capital and labor in the business
of mining.

Notice, in determining whether or not the plaintiff was a member of the
class of persons taxed, the Court had to determine if it was engaged in
business activity, that is, whether it expected to make a profit from the
activity, or, put in other words, whether it expected to have "income"
from the activity. Thus, the identification of the class of persons
taxed, in this case, depends on whether the activity engaged in is engaged
in for purposes of generating "income" (whether or not any income is
actually derived - thus, the analysis is still distinct from the analysis
of the measure of the tax).

Finally, the issue of whether the proceeds were "income" was completely
distinct from the nature of both the activity engaged in and the person
engaging in the activity - so long as a particular item constituted "gain
derived from capital, labor, or both" - it was "income." Thus, the
analysis of the measure of the tax is completely distinct from the
analysis of whether or not the plaintiff is a member of the class of
persons taxed.

In short, the cases you "cite" to do not hold that "income" means only the
gain derived by corporations, and thus any subsequent lower court cases
are (a) not overruling anything you've cited to, and (b) are in fact
applying the cases you cite to for the right reasons.


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