| N.D. Ill. | Jan 15, 1869
thereupon, instructed the jury upon the law of the ease to the following effect: It mjght be true in many cases where a man made a charge on his books for debts due as the result of the year’s business, they would constitute assets, and come within the definition of gains or profits. For example, instead of money, he might receive promissory notes, bills of exchange, bonds or mortgages, or different kinds of securities, and these, if good, might properly become a part of his income. Even treasury notes and national bank notes were not actually money, but only the representatives of money, though treated as such by the commercial world, and with them the government is carried on and alone supported, except by what gold is received through the customs. Many kinds of securities—as bonds of the United States, for instance-are considered as money or available assets, because convertible at once into money, and therefore when any of these are received as the result of a year’s business, they are legitimately a part of a year’s income. The rule would be the same, of course, if instead of them, it were property real or personal. In all these cases there are real gains or profits. But when a man, at the end of the year found upon his books amounts charged without having, actually received any portion of the same or had bills receivable unavailable, it seemed to be a misnomer to call them gains or profits, which were not, and never might be realized. It was hard, certainly, a man should be convicted for a difference of opinion between himself and the government officer, as to whether he should, in his income returns, give in bad or doubtful debts. The rule of the bureau was understood to be that debts due in the year were to be included as income unless known to be absolutely worthless. It was often a difficult question to decide when that was so, particularly in this western country, and it gave too great a discretion to the party making the return. If a man has invested all his capital in starting a business, and his books at the end of the year showed large nominal profits in accounts and bills receivable, he might not in fact have the money to pay the government tax on those profits. Take another illustration: A man might have a promissory note of a thousand dollars, which was called good when he made his return, and thus pay a tax on it as so much income, and, in fact, it might be all the time worthless, and he would be obliged to pay for what he thought was good, but was not really so. It is said, indeed, that the practice is to allow deductions to be made from the succeeding income returns, but suppose a man never after has a taxa
These were some of the general views of the court on the law of this case, but whether they were all correct or not, for it was confessedly a difficult subject to treat with entire accuracy, THE COURT was of the Opinion that the facts would not justify a conviction, and the district attorney acquiescing, the defendant was acquitted by the jury.
THE COURT, in commenting upon the revenue laws, in this ease, said: The language of the law is that there shall be levied and collected a tax of five per cent, on the amount derived—over one thousand dollars—from the annual gains, profits and income of every person. The law declares what shall be included in estimating the gains, profit and income of a person; as income derived from interest on notes and other securities of the United States; profits realized from sale of lands, etc.; interest received or accrued on notes, bonds, etc., bearing interest, whether paid or not, if good and collectible. This seems to be the only place where the law speaks distinctively of interest accruing, but not paid. The law then mentions the amount of premium on gold and coupons, and of sales of the farm, except, etc.; and then adds: “All other gains and profits derived from any source whatever, and the share of any person in the gains and profits of all companies, whether divided or otherwise,” with certain exceptions. The law, then, in giving the exemption of a thousand dollars, declares that there shall also be deducted the taxes paid within the year; certain losses actually sustained; the amount actually paid for rent of the house; the amount actually paid for repairs, etc. Now in all these deductions allowed the statute seems careful to exclude the amount due for taxes for labor, for rent or for repairs, but requires that they shall be paid. Among the various deductions allowed are “debts ascertained to be worthless.” This is the only place where this word debts is used, and it may thence be claimed that debts not ascertained to be worthless are to be included as income, but it is clear, J think, tnat the debts must be gains or profits, and if hey are not they are no part of a man's taxable income. The language is. “ascertained to be worthless.” By whom or how? The law Is silent bn this important point, and therefore there must be a discretion given to the person making his returns, and if that discretion is used fairly and honestly there would seem to be no just ground of complaint. It certainly can scarcely be contended that every debt must be ascertained to be worthless by a suit at law. or in equity, for that would be impracticable, and therefore such cannot be the meaning of the law. It is undoubtedly very difficult to lay down any rule of universal application to this class of cases, and yet the want of precision in the law may have led to this prosecution. and may lead to others, and, perhaps, on the whole, it would be better to give, by law, a clearer and simpler definition than now exists of the terms “gains, profits and income.”