Law School Case Brief
Irwin v. Gavit - 268 U.S. 161, 45 S. Ct. 475 (1925)
The Income Tax Act of October 3, 1913, ch. 16, § II, A(1), 38 Stat. 114, 166, et seq., provides that there shall be levied a tax upon the entire net income arising or accruing from all sources in the preceding calendar year to every citizen of the United States. Congress has intended to use its power to the full extent. By B, the net income is to include gains or profits and income derived from any source whatever, including the income from but not the value of property acquired by gift, bequest, devise or descent. By D, trustees are to make return of the net income of the person for whom they act, subject to this tax, and by E, trustees and others having the control or payment of fixed or determinable gains, etc., of another person who are required to render a return on behalf of another are authorized to withhold enough to pay the normal tax.
Taxpayern Gavit received certain sums under decedent's will, and the income from that fund was to be used for the education and support of the decedent's granddaughter, until she reached the age of 21 years. The Internal Revenue Service determined that such payments were income to the taxpayer. The taxpayer brought an action to recover the taxes and penalties. The trial court entered judgment for the taxpayer, finding that the payments received were property acquired by bequest, were not income, and were not subject to tax. The judgment was affirmed on appeal, and Irwin, the IRS Commissioner, sought further appellate review in the United States Supreme Court.
Were the sums received by a taxpayer under the will of Anthony N. Brady in 1913, 1914 and 1915, income and therefore, subject to taxation?
The United States Supreme Court reversed the judgment, holding that the sums paid the plaintiff were taxable income within the meaning of the Constitution, and of the Income Tax Act of October 3, 1913, which taxed "the entire net income arising or accruing ... to every citizen of the United States" and defined net income as "gains or profits and income derived from any source whatever, including the income from but not the value of property acquired by gift, bequest, devise or descent."
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