Murphy - or are lawyers natural contortionists?

[natty]

Please explain what COSTS went into her emotional well-being and her vocational reputation. I would like to hear an example of *ONE* cost that should be considered a capital investment and not a personal living expense.

First of all, 'a capital investment' is composed of after tax dollars. 'A personal living expense', since it is not deductible from gross income and has nothing to do with the production of the gross income itself, is paid out of capital (after tax dollars). Therefore, all personal living expenses go into building one's human capital.

A capital investment is not deductible. Personal living expenses are not deductible. Therefore, all personal living expenses are capital investments?

I had a math teacher in high school who repeatedly insisted that all human beings are bipeds, and birds are bipeds, so therefore all birds are human beings. He was joking; you seem to be serious. I would therefore suggest that you revisit high school logic, because you are in need of a refresher course.

I don't have a logic problem, mr. lawyer. You have a contortion problem. You invented a syllogism that I never said. Maybe it was the "therefore" that threw you off. Is it your position that the use of "therefore" always concludes a syllogism?

If you want a syllogism, it is this: All after tax dollars become capital. Personal living expenses are paid with after tax dollars. Therefore, personal living expenses are paid with capital.

You had implied by your question that personal living expenses were not capital investments. My proposition is that all personal living expenses over and above food necessary for subsistence is a capital expenditure forming "human capital".

[Famspear]

Natty wrote:

If you want a syllogism, it is this: All after tax dollars become capital. Personal living expenses are paid with after tax dollars. Therefore, personal living expenses are paid with capital.

Dear Natty: That's great, but that's not the law. Now, all you have to do is find a law that says that when you pay a personal living expense, that expense is not really an expense and is instead an addition to "basis" in "human capital."

Good luck.

--Famspear

[Famspear]

Oops, I need to correct myself.

That's not all you have to do.

You would ALSO have to find a law that says you can offset that supposed "basis" in that supposed "human capital" against the amount realized upon recovery of money in connection with a personal injury, in determining gain or loss on the recovery.

--Famspear

[Famspear]

Natty wrote:

My proposition is that all personal living expenses over and above food necessary for subsistence is a capital expenditure forming "human capital".

So, find a statute or a court decision that says that all personal living expenses over and above food necessary for subsistence is a capital expenditure forming human capital.

---Famspear

[Quixote]

My proposition is that all personal living expenses over and above food necessary for subsistence is a capital expenditure forming "human capital".

So a doughnut is a capital expenditure? What lasting value does a doughnut add to the eater?

You'd be better off arguing that educational expenses are a capital investment. There is a well documented connection between level of education and earning potential. Some state courts have considered, in connection with divisions of marital property, if medical and legal degrees were property. Iirc (and that's a big if), California decided they were, but Texas and others decided they were not. Even if a degree were a capital asset, a deduction for depreciation would still be a matter of legislative grace.

[Quixote]

A hypothetical question for all: Last year Tom traveled to Wackystan and sold one of his kidneys for $50,000. He is preparing his Schedule D and asks you what he should but on line 8, column e, "cost or other basis". What do you tell him?

[natty]

Now, all you have to do is find a law that says that when you pay a personal living expense, that expense is not really an expense and is instead an addition to "basis" in "human capital."

Good luck.

--Famspear

You miss the point, mr. lawyer. The Murphy panel failed to decide whether or not Murphy's damage award was income. That same panel had held on first hearing that her award was NOT income based on the concept of "human capital". The compensatory award merely made her whole.

The critics of the "human capital" argument contend that it is bogus because there is no cost basis in human capital. I am proving the critics wrong.

[natty]

What lasting value does a doughnut add to the eater?

It is comfort food and adds to the eater's well being.

You'd be better off arguing that educational expenses are a capital investment.

Fine by me. The lawyer wanted just ONE example of a capital investment in human capital.

[Paul]

You miss the point,

YOU seem to be missing the point, which is that the Murphy court is alone in holding that the damage award was not income and they held that it was taxable anyway. So how does applying their reasoning to any other situation to hold that something is not income help anyone prove that that "something" is not taxable?

[natty]

A hypothetical question for all: Last year Tom traveled to Wackystan and sold one of his kidneys for $50,000. He is preparing his Schedule D and asks you what he should but on line 8, column e, "cost or other basis". What do you tell him?

a) Enter a $50,000 basis and hope the IRS does not audit you.
b) Forget about it. They paid you cash.
c) Forget about the deduction because selling a kidney is illegal. You would be confessing to a crime.
d) What fool sells a kidney for $50,000?

[natty]

So how does applying their reasoning to any other situation to hold that something is not income help anyone prove that that "something" is not taxable?

It doesn't. Should we all just submit to those in govt without criticism?

If Congress chooses to tax something as "income" whether or not that thing is indeed income begins a slide down the slippery slope. Murphy did not benefit to the full extent her jury intended. That is fundamentally unfair.

[Famspear]

Natty wrote:

If Congress chooses to tax something as "income" whether or not that thing is indeed income begins a slide down the slippery slope. Murphy did not benefit to the full extent her jury intended. That is fundamentally unfair.

Gotta disagree. If there is anything that the Murphy court did that was brilliant, it was to adopt the Penn Mutual verbiage and effectively re-emphasize the plenary power of taxation --the power granted to Congress by the original text of the U.S. Constitution. Basically, the only limits in the Constitution (as amended) on the KINDS of taxes Congress may impose are: (1) No tax on articles exported from a state; and (2) no tax imposed as a condition of voting for President, etc.

Courts have ruled, over and over, that the power of Congress to tax is "plenary." The apportionment and geographical unformity restrictions -- to the extent they even apply -- are not technical restrictions on the KIND of taxes that may be imposed.

Thus, it does not matter whether it's a sales tax and Congress calls it an income tax, or whether it's an income tax and Congress calls it a sales tax. It doesn't matter whether the item of "income" that is taxed is really "income" or whether it's really "wuh-boo-buh-snork" (whatever!), since Congress could tax "wuh-boo-buh-snork," even if it weren't income. As long as the rules on apportionment, uniformity, taxes on exports, taxes on voting, etc., aren't being violated, there IS NO SLIPPERY SLOPE, and there can be no danger of a "SLIDE."

I am not going to argue with the assertion that Murphy's treatment is "fair." This is not about "fairness."

--Famspear

[Famspear]

Paul wrote:

So how does applying their reasoning to any other situation to hold that something is not income help anyone prove that that "something" is not taxable?

Natty responded:

It doesn't. Should we all just submit to those in govt without criticism?

This is not about submitting to those in government, or about critiques of government or of people in government. This is a discussion about what the law is.

--Famspear

[Florida]

A hypothetical question for all: Last year Tom traveled to Wackystan and sold one of his kidneys for $50,000. He is preparing his Schedule D and asks you what he should but on line 8, column e, "cost or other basis". What do you tell him?

I would tell him to get receipts for everything he's ever consumed, in addition to receipts available for everything his mother has consumed, and then find receipts for any alcohol purchases he's made.

I would then tell him to apply the "subtraction method" and use the resulting number as his basis.

Then I would return a client phone call regarding a woman who asked if she could depreciate her body for her profession as a prostitute.

[Brian Rookard]

While I agree that the Penn Mutual decision is a model of clarity in thinking about these things ... in Penn Mutual, they were also dealing with provisions of the tax code which defined the income of insurance companies in a certain manner (the provisions under consideration there defined the gross income of insurance companies in such a way that you could LOSE money, but still be taxed - which is what happened in Penn Mutual ... a deduction was not allowed which meant that a loss on the books was not a loss under the income tax). In Penn, the "income tax" was more akin to a gross receipts tax, and not really an income tax ... and as the court noted, that doesn't matter ... and they were right.

In Murphy, there IS a problem with taking the Penn Mutual approach. Murphy is not being taxed under separate provisions (like for insurance companies) ... but under the general provisions of the income tax.

Under section 61, gross income includes all INCOME. Thus, for Murphy, it DOES matter whether the damage awards are income, because gross income under section 61 is defined to be INCOME.

While I like the fact that the Murphy decision grabbed on to the Penn Mutual decision (because I think that the Penn Mutual decision presents the absolutely right approach to the question as far as thinking about Congress' taxing power) ... it is not clear that Penn Mutual provides the ultimate answer because in Murphy you are dragged back to section 61 where gross income is INCOME. Thus, you must STILL ask whether the damage awards are income.

[Brian Rookard]

Where Penn Mutual destroys tax protestor arguments is that in thinking about section 61, "gross income" is specifically defined to include "compensation for services."

Now, even if you don't think that "compensation for services" is technically "income," then Penn Mutual's reasoning helps to clear the clutter.

Gross income includes compensation for services. Is compensation for services technically income. Let's assume it's not. Is it gross receipts? Let's assume it is. Under Penn Mutual, we now say "forget the label of it being an 'income' tax ... gross income specifically includes compensation for services ... and so let's assume that Congress mislabeled the tax and the tax (by including 'compensation' for services) is really more akin to a gross receipts tax when applied to a persons wages. Can Congress tax gross receipts? Yes. Is such a tax a direct tax? No. Is the tax invalid because Congress taxed ACTUALLY taxed gross receipts under a supposed 'income tax'? No." End of story. Have a nice day.

This is the argument that courts SHOULD be making in addressing tax protestor arguments ... that it doesn't matter because gross income specifically includes compensation for services and even if that makes the "income tax" a "gross receipts tax" ... then oh well, the tax is still valid as an indirect tax.

[Quixote]

Where Penn Mutual destroys tax protestor arguments is that in thinking about section 61, "gross income" is specifically defined to include "compensation for services."

Now, even if you don't think that "compensation for services" is technically "income," then Penn Mutual's reasoning helps to clear the clutter.

Gross income includes compensation for services. Is compensation for services technically income. Let's assume it's not. Is it gross receipts? Let's assume it is. Under Penn Mutual, we now say "forget the label of it being an 'income' tax ... gross income specifically includes compensation for services ... and so let's assume that Congress mislabeled the tax and the tax (by including 'compensation' for services) is really more akin to a gross receipts tax when applied to a persons wages. Can Congress tax gross receipts? Yes. Is such a tax a direct tax? No. Is the tax invalid because Congress taxed ACTUALLY taxed gross receipts under a supposed 'income tax'? No." End of story. Have a nice day.

This is the argument that courts SHOULD be making in addressing tax protestor arguments ... that it doesn't matter because gross income specifically includes compensation for services and even if that makes the "income tax" a "gross receipts tax" ... then oh well, the tax is still valid as an indirect tax.

I see two problems with applying the Penn Mutual approach to income types enumerated in Section 61. First, the courts have long held that Congress did not define "income" in the IRC. They're going to look silly if they do a 180 on the subject. Second, the legislative history of IRC 61, which goes back to the 1913 act, makes it clear that the enumeration in IRC 61 was intended to be only examples of income and that Congress left the definition of "income" to the courts.

Absent a specific definition of income in the statute, such as in Penn Mutual, I would hope the courts would avoid expanding on the definition of income beyond its normal meaning.

[natty]

I am not going to argue with the assertion that Murphy's treatment is "fair." This is not about "fairness."

--Famspear

Taxation is all about fairness. There is no other criteria. That includes whether or not the law is fair.

It wasn't long ago that the Clinton administration was arguing that people who owned their homes free and clear had an unfair advantage over people who rented or paid a high mortgage. They claimed that the value not paid on rent or mortgages should be imputted as income. Murphy leads credence to such a claim. -Slippery slope...

[Famspear]

Natty wrote:

Taxation is all about fairness. There is no other criteria. That includes whether or not the law is fair.

It wasn't long ago that the Clinton administration was arguing that people who owned their homes free and clear had an unfair advantage over people who rented or paid a high mortgage. They claimed that the value not paid on rent or mortgages should be imputted as income. Murphy leads credence to such a claim. -Slippery slope...

Dear Natty: Regarding imputed income based on the value not paid on rent or mortgages, there is no law that currently taxes that "imputed income," regardless of what someone in the Clinton administration did or did not argue. The sources of law include the Constitution, statutes, case law, regs, treaties, etc., but do not include something somebody in the Clinton administration supposedly argued somewhere, per se.

If you really believe that taxation is "all about fairness" then I have a bridge in San Francisco I want to sell to you.

--Famspear

[Imalawman]

...
Under the current system, the income tax is regressive, in that as you earn more money, you pay more in taxes. As you earn more, your marginal tax rate increases and the amount you can deduct and claim exemptions on decreases to zero.

Taxes are all about extracting as much as possible from as many people as possible and doing so in a revenue maximizing manner.

I'm not following you there Cap'n. Did you mean progressive?