Hort v. Commissioner

4 Analyses of this case by attorneys

  1. The Taxman, Technology Litigation and Cavalier Settlement Structures

    Gray ReedBrian ClarkFebruary 21, 2024

    ely upheld $15.57 million of taxes and penalties against Acqis. While the Acqis case illustrates the perils of an overly aggressive reporting position, it also demonstrates that high-dollar patent and technology litigants should take steps to plan for tax consequences from inception of the case. Note too that there are tax structuring strategies that can provide tax efficiencies while still staying within the confines of extant tax laws. As Benjamin Franklin famously said, “by failing to prepare, you are preparing to fail.” While general tax principles are applicable to all IP species, there are many nuances applicable to the different forms of IP. As non-exclusive examples, trademark cases vary from copyright cases and the inclusion of unfair competition claims with patent infringement claims may result in different tax treatment. All “§” references are to specific sections of the Code unless otherwise noted.United States v. Gilmore, 372 U.S. 39 (1963); see also Hort v. Commissioner, 313 U.S. 28 (1941). Treas. Reg. § 1.263(a)-4(d)(9). See also Treas. Reg. § 1.263(a)-4(e)(5).SeeUrquhart v. Commissioner, 215 F.2d 17 (3d Cir. 1954). For an interesting illustration of the granularity of “deduct versus capitalize” analysis in the pharmaceutical industry, see IRS AM 2014-006. Seealso IRS FSA 199925012 (A “tacit acceptance of Urquhart lends support to the notion that patent litigation expenses are presumed deductible as an initial premise.”)SeeMathey v. Commissioner, 177 F.2d 259 (1st Cir. 1949).See Big Four Industries, Inc. v. Commissioner,40 T.C. 1055(1963) and Bresler v. Commissioner, 65 T.C. 182 (1975).Acqis Technology, Inc. v. Commissioner, T.C. Memo 2024-21 (Feb. 13, 2024).[View source.]

  2. Post-Quarantine Buyout Of A Partner

    Farrell Fritz, P.C.Louis VlahosMay 26, 2020

    These properties must not represent inventory or other property held primarily for sale to customers in the ordinary course.[xxxix]Hort v. Commissioner, 313 U.S. 28 (1941).[xl] An income approach to valuation; for example, the discounted cash flow and capitalization of cash flow methods.

  3. Sale Of A Contract: Ordinary v. Capital – Round Two

    Farrell Fritz, P.C.Louis VlahosDecember 17, 2019

    Armed with this information, the economics of a transaction may be negotiated, or the deal terms may be structured, so as to minimize any adverse effects.https://www.taxlawforchb.com/2017/07/sale-of-a-contract-capital-gain-or-ordinary-income/ IRC Sec. 61(a)(1).Hort v. Commissioner, 313 U.S. 28 (1941). Assignment = Sale, for our purposes.

  4. IRS Reaffirms Advice on the Proper Employment Tax Treatment of Settlements

    Littler Mendelson, P.C.September 16, 2013

    Rather, employers should: Understand the nature of the claims being asserted, their character and the basis for settlement; Carefully craft settlement agreements that specify the nature of each amount being paid in the agreement with clear allocations between the kinds of payments (wages, attorney’s fees, etc.); Ensure that amounts are properly reported on IRS forms W-2 and 1099 as required, with separate forms to plaintiff’s counsel as well as plaintiff.1Commissioner v Banks 543 U.S. 426 (2005).2Citing Sinyard v. Commissioner (9th Cir. 2001) 268 F.3d 756 and Vincent v. Commissioner, T.C. Memo 2005-95.3Citing Alexander v. Internal Revenue Service (1st Cir. 1995) 72 F.3d 938, 942 (the test for purposes of determining the character of a settlement payment for tax purposes “is not whether the action was one in tort or contract but rather the question to be asked is 'in lieu of what were the damages awarded?'”); Hort v. Commissioner (1941) 313 U.S. 28 (holding that an amount received upon cancellation of a lease was a substitute for the rent that would have been paid under the lease and, thus, was taxable as ordinary income); Rev. Rul. 96-65, 1996-2 C.B. 6, (holding that payments received by an individual in satisfaction of a discrimination claim under Title VII are both income and wages).4Treas. Reg.