“Threaded Discussions: A person who wishes to contribute early in the week may provide a straightforward brief of a case (or perhaps just the facts and issues). Students who come online later should provide more meat to the brief or analysis. These students may wish to consider some subtle points not addressed earlier in the week, the impact of the case on current practice, your agreement or disagreement with students who have written earlier in the week. Similarly, students entering a thread consisting of a tax problem late in the week may agree or disagree with earlier comments, analyze the problem after changing some of the assumptions (e.g., to make the problem more practical), and so on.”We have one student reply to this thread now, I will provide his/her reply here.When you analyze this case, you can use sources from my book (which I attached below) or Internal Revenue Code & Regulations. Please contact me if you have questions.
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Facts of the case:
Calendar Year: 1964
Plaintiffs: Husband and Wife from Ohio
Refund Amount requested: $836.51
Synopsis: Couple purchased a piano at an auction for $15.00 in 1957. In 1964
the amount of $4,467 in old currency was found in the piano however the source of the funds
were unknown. The plaintiffs exchanged the old currency to new currency and included the
funds of $4,467 in their original tax return filed in calendar year 1964. Taxes were paid on
this additional income in the amount of $836.51. However, on October 8, 1965 an amended
return was filed excluding the amount of $4,467 as income and a refund of the tax
overpayment was requested in the amount of $836.51. The request was rejected on January
18, 1966 by the Commissioner of Internal Revenue. Plaintiffs filed an instant action on
1. Should the amount of $4,467 be included as gross income under the IRC section 61
2. Even if the retention of the cash constitutes a realization of ordinary income the piano
was purchased in 1957 and by 1964 the statue of limitation had elapsed.
3. If the treasure trove money is gross income for the year 1964 then it was entitled to
capital gains treatment under Section 1221 of Title 26
The $4,467 found in the piano is included in Section 61(a) as gross income therefore taxable
in the year of 1964 (the year the monies were found) as gross income and not entitled to
capital gains treatment.
Section 61(a): Except as otherwise provided in this subtitle, gross income means all
income from whatever source derived, including (but not limited to) the following items***
“The finder of treasure-trove is in receipt of income, for federal tax purposes, to the
extent of its value in the united states currency for the taxable year in which it is reduced to
undisputed possession. Rev.Rul. 61
Ruling: Refund Denied – The taxpayers were not entitled to a refund nor are they entitled to
capital gains treatment on the income item.
Question: When was the money “reduced to undisputed possession”?
In this case Cesarini v. the United States of America the question is does the old
currency found in the piano over $4,467.00 fall into the category of “gross income” or not.
This said to determine, whether it is gross income and taxable or not, depends on Section
61(a) of Title 26 U.S.C.A. accordingly. In other words, this section clearly defines what is
considered gross income and what not. Consequently, when applying this section it is clear
that “old currency” or the $4,467.00 is considered as gross income and taxable. In fact, the
section states 15 items, which are excluded or can be excluded from gross income, but old
currency is not listed. Therefore, the ruling is based on the fact that “found” money or old
currency is not expressively excluded from gross income. Hence, the amount is taxable,
because it falls into the group of “all income from whatever source it stems.”
In my view, contesting that the $4,467.00 should not be part of gross income and
taxable makes no sense, based on the 1954 code and section 1.61-1 (a) of the Treasury
Regulations, which clearly stipulates that gross income includes everything regardless of the
source, unless it is any of the 15 excluded items. In addition, the 1964 Treasury regulation
can be applied as well, since the $4,467.00 qualify as so called “miscellaneous items of gross
income (1.61-14). In other words, we can argue this case falls alike, into the category of
“other kinds of gross income” according to the 1964 Treasury regulation. Moreover, the
plaintiff (Cesarini) cannot claim either that the taxes were due in 1957, when the piano was
purchased and not in 1964, the year the money was found. Arguing that in 1964 it was
beyond the statute of limitation and no taxes were due stands no ground for winning this case
and receiving a refund. Now, since the case took place in Ohio, and Ohio had no laws in
place on how to deal with the concept of statute of limitation, common-law rule of England
applied, making the plaintiff responsible to pay the taxes respectively. This said the United
States was entitled to collect the taxes in 1964 since the claim of statute of limitation did not
apply. Lastly, the amount does also not fall into the category of “capital gains” as argued by
Cesarini, because this claim was not valid either.
Cesarini v. the United States is an interesting case, because the ruling is strictly based
on what qualifies as gross income and what not, applying section 61 (a) of Title 26 U.S.C.A
respectively. In this way, thank you, for sharing the overview of the case with all of us and
good luck to you for the rest of this week.
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