Schmidt Baking Company, Inc. - Page 5

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          deduction arising from this payment in the taxable year 1988.                      
          Respondent determined that the 1991 deduction, and hence the                       
          carryback to 1988, was not allowable.                                              
          Discussion                                                                         
                Resolution of the question before us involves an analysis of                 
          several interrelated statutory and regulatory provisions which                     
          can only be described as a semantical exercise worthy of Judge                     
          Learned Hand's famous commentary on the complexity of the                          
          Internal Revenue Code, a commentary which has acquired added                       
          significance in the years since it was first articulated.3  As a                   
          consequence, we set forth that analysis in order to bring into                     
          focus the precise question that we must decide, namely, whether                    
          the amounts of the accrued vacation and severance pay were "paid"                  
          when the letter of credit was purchased on March 13, 1992.                         
          Statutory Framework                                                                
                The parties have stipulated that the purchase of the                         
          irrevocable letter of credit was a transfer under section 83,                      
          resulting in includability of the value of the interest                            
          transferred in the income of the employees as of the date of                       

          3  [T]he words of such an act as the Income Tax * * *                              
                merely dance before my eyes in a meaningless                                 
                procession: cross-reference to cross-reference,                              
                exception upon exception * * *.  * * * at times I                            
                cannot help recalling a saying of William James about                        
                certain passages of Hegel:  that they were no doubt                          
                written with a passion of rationality; but that one                          
                cannot help wondering whether to the reader they have                        
                any significance save that the words are strung                              
                together with syntactical correctness.  * * * [Hand,                         
                "Thomas Walter Swan," 57 Yale L.J. 167, 169 (1947).]                         



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