United Parcel Service of America - Page 66




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          for California workers' compensation coverage.  By December 31,             
          1984, petitioner had incurred workers' compensation losses in               
          California that had been paid by Liberty Mutual in the amount of            
          $2,714,500.  Respondent disallowed $11,527,41524 deducted on                
          petitioner's 1984 return.  After concessions, the amount in                 
          dispute with respect to the Liberty Mutual policy has been                  
          reduced to $11,151,675.25                                                   
                                       OPINION                                        
          I.   Excess Value Charges                                                   
               Respondent determined that EVC's in the amount of                      
          $99,794,790 must be included in petitioner's 1984 income pursuant           
          to section 61.  Section 61(a) provides in part that "gross income           
          means all income from whatever source derived".  It is                      
          fundamental to our system of taxation that income must be taxed             
          to the one who earns it.  See Commissioner v. Culbertson, 337               


               24This amount represents the difference between the total of           
          $14,241,915 of deductions and the $2,714,500 actually paid out by           
          Liberty Mutual Fire in 1984 claims.                                         
               25Respondent conceded a total of $375,740.  See supra note             
          2.  Thus, respondent's initial disallowance of $11,527,415 has              
          been reduced by $375,740 to $11,151,675.  The $375,740 conceded             
          by respondent is made up of $325,740, representing a 12-percent             
          claim adjustment expense for losses paid in 1984 plus $50,000 in            
          premiums paid to Liberty Mutual for risk associated with claims             
          over $250,000.                                                              
               The $325,740 conceded amount was calculated by respondent to           
          be an allocation of a portion of the total $1.2 million retained            
          by Liberty Mutual based on the ratio of 1984 claim payments to              
          total 1984 claims paid between 1984 and 1994.                               




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