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The oft-cited “first principle of income taxation” is that
“income must be taxed to him who earns it.” Commissioner v.
Culbertson, 337 U.S. 733, 739-740 (1949). Sparkman’s testimony
convinces us that the HECO payments were income of the Mercury
Solar business (and hence Sparkman’s income), notwithstanding
contractual arrangements with a factoring company to “direct” some
of the payments to HEH.30
Petitioners contend that HEH reported the missing $113,354 of
HECO rebate payments on its 1999 tax returns. Petitioners concede
that HEH did not file its 1999 Federal tax return until shortly
before the trial in these cases but contend that this circumstance
“should not affect the credibility of the contents of the HEH tax
return”. Petitioners’ argument misses the mark. In the first
instance, the evidence is insufficient for us to conclude with any
30 On brief, petitioners suggest that the HECO rebate
payments were divided between HEH and Mercury Solar PTO because,
pursuant to the HECO rebate program, HEH was entitled to a
portion of the rebate as the “owner” of the solar equipment, and
Mercury Solar PTO was entitled to a portion of the rebate as the
“contractor” of the equipment. The premises of this contention
are contrary to Sparkman’s testimony: “whenever someone installs
a solar system via the Hawaiian Electric Company rebate program
either the contractor or the homeowner is entitled to an $800
cash subsidy.” (Emphasis added.) The terms and conditions of
the HECO rebate program are not otherwise clearly described in
the record. Nor does the record otherwise contain any credible
basis to support dividing the rebate income between HEH and
Mercury Solar PTO. The parties have not raised, and we do not
reach, any issue regarding the proper tax treatment of the
factoring fee that was allegedly paid to the factoring agent with
respect to the HECO payments.
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