The Supreme Court case, Commissioner v. Tufts, 463 U.S. 1215 (1983) Essay

The Supreme Court case, Commissioner v. Tufts, 463 U.S. 1215 (1983) - Essay Example The court based its decision on a tax benefits theory. The taxpayer would have received untaxed income as at the time the loan was extended unless the amount of the mortgage shall be deemed to have been realized. The taxpayer would have therefore received untaxed income at that time when the loan was extended and would have been entitled to an increase in his basis in the property for depreciation purposes by the amount of his liability and would avoid taxation upon the ending of the obligation (Watson, 2011). i) The first is the fact that loan proceeds do not qualify as income to a taxpayer because he incurs an obligation to repay the loan at the agreed terms to the creditor. If and when the borrower is relieved of the liability for the loan, the proceeds of the loan will henceforth be included in his income as if he received the cash to satisfy the obligation. It takes us back to point the difference that is apparent when compared to Crane v. Commissioner: 331 U.S. 1 (1947). In this matter the petitioner had sought the Supreme Court‘s judicial review of an earlier decision by the court of appeal on how a taxpayer who acquired property subject to the unassumed mortgage. The taxpayer held the property for some time before selling so encumbered and was to account for taxable gains from the sale proceeds. The Supreme Court held by affirming the decision of the court of appeal that had held that the tax court’s use of equity as a basis for the determination of either a gain or l oss was, therefore, improper. ii) The second fact is that the recovery within a taxable year of a previously deducted item must, therefore, be included in gross income to the extent that it produced a tax benefit in that previous year. Deductions for the purposes of depreciation provide a shelter from tax. Therefore, a taxpayer’s basis in his