Burnet v. Sanford & Brooks Co, 282 U.S. 359 (1931)
Nov 11, 2014 by Vahid Dejwakh

Facts and Procedural History

Trudging company reports net losses for 1913, 1915, and 1916. In 1916, after the contract was over, company files a suit to recover for a breach of warranty of the character of the material to be dredged (which, presumably, caused them to incur more expenses than they had planned and thus resulted in net losses for those years). In 1920, the company wins and collects, but does not report it on their taxes for 1920. Company claims this money was owed to them and that they should be able to deduct the losses for the three years.

Commissioner rules in favor of the government, saying that both the excess expenses and the interest from them are to be considered taxable income. The Court of Appeals reverses and amends, saying only the interest is taxable income.


1) Does the 16th amendment allow for taxes to be derived from things other than net income (i.e. other than profit) ?
2) Should taxpayer be allowed to deduct losses from past years from the present taxable income?

Holding and Dissent(s)

Reverse in favor of the government. Both the award and the interest are fully taxable, and the company may NOT deduct losses from past years.

The 16th amendment is not that narrow, and does not require taxing only profits. “A tax payer may be in receipt of net income in one year and not in another. The net result of the two years, if combined in a single taxable period, might still be a loss; but it has never been supposed that that fact would relieve him from a tax on the first, or that it affords any reason for postponing the assessment of the tax until the end of a lifetime…”

Analysis and Discussion

Here, the award was payment stemming from a contract entered into for profit. In Clark, the payment by the tax accountant was not part of a contract.

Note: Burnet is the IRS Commissioner, and this case should be referred to as "Sanford & Brooks"

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