Burnet v. Logan

Facts

Logan (P) owned 250 shares of Andrews and Hitchcock Iron Company. That company held 12% of the stock in the Mahoning Ore & Steel Company. The Steel Company procured a 97-year lease from the Mahoning Mine and has taken large quantities of iron ore. The lease did not required production of either maximum or minimum quantities. Through an agreement with shareholders of the Steel Company, the Mahoning Company was obligated to apportion extracted ore among them according to their holdings. In 1916, Youngstown acquired all the shares of Andrews and the right to take 12% of the ore from the Mahoning mine. Youngstown paid $2.2 million for the stock and agreed to pay annually to them 60 cents for each ton of ore apportioned to it. P got her share which was $137,500. In 1917, P's mother died, and the mother had owned 1100 shares of the Andrews company. The mother left P 1/2 of her interest in the payments. This bequest was appraised at $277,164.50. During the years P got her tonnage payments for her share and her mother's 1/2 share as detailed in the last paragraph page 842 Freeland 11th. P filed tax returns but failed to report the annual payments from Youngstown. P claimed that no taxable income will arise from the transaction until she gets a sum equal to the appraised value of the shares in 1913. The value in 1913 was in excess of $173,089,80, the total sums received by P to date. That value also exceeded the original cost of the shares. The IRS ruled that the fair market value of the 60 cent tonnage fee was $1,942,111.46 as of March 1916 and that value should be treated as cash and used to apportion subsequent annual receipts between income and return of capital. This resulted in deficiency assessments, and the Board of Tax Appeals court agreed with the IRS. The Circuit Court of Appeals disagreed and sided with P. The Supreme Court granted certiorari. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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