- 43 -
the character of the income as such does not prevent the
application of section 265(1). As we stated in Rickard v.
Commissioner, supra at 193-194, where the tax exemption attaching
to the taxpayer's farm income derived from his status as an
Indian and the location of the farm on Indian land:
The legislative purpose behind section 265 is
abundantly clear: Congress sought to prevent taxpayers
from reaping a double tax benefit by using expenses
attributable to tax-exempt income to offset other
sources of taxable income. Manocchio v. Commissioner,
78 T.C. 989, 997 (1982), affd. 710 F.2d 1400 (9th Cir.
1983). More importantly, the Supreme Court has
concluded that Congress intended to limit deductions to
those expenses related to taxed income. Rockford Life
Insurance Co. v. Commissioner, 292 U.S. 382 (1934).
* * * [Fn. refs. omitted.]
Nor is it relevant that the tax-exempt income to which FPCF
relates was earned by petitioner in an earlier year. In Stroud
v. United States, supra, the taxpayer was denied a deduction for
amounts paid in the taxable year because of a breach of contract
to provide medical service in return for a tax-exempt scholarship
received in an earlier year.
We hold that the FPCF payments in question are not
deductible.
Grants to Organizations and for Patient Care
Respondent disallowed further deductions for petitioner's
grants to charitable organizations because of the limit contained
in section 170(b)(2), which provides that a corporation's
deductions for charitable contributions may not exceed 10 percent
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011