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Knetsch v. United States, 364 U.S. 361 (1960)
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General SummaryThis case is from a collection containing the full text of over 16,000 Supreme Court cases from 1793 to the present. The body of Supreme Court decisions are, effectively, the final interpretation of the Constitution. Only an amendment to the Constitution can permanently overturn an interpretation and this has happened only four times in American history.
Knetsch v. United States, 364 U.S. 361 (1960)
Knetsch v. United States No. 23 Argued October 17-18, 1960 Decided November 14, 1960 364 U.S. 361
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Syllabus
In 1953, a 60-year-old taxpayer purchased single-premium 30-year maturity deferred annuity savings bonds with an aggregate face value of $4,000,000 from a life insurance company, paying only a nominal sum in cash, giving nonrecourse notes secured by the bonds for the balance, and paying a substantial amount as "interest" in advance on that "indebtedness." A few days later, he borrowed from the company nearly all of the excess of the cash surrender value which the bonds would have at the end of the first contract year over the amount of the existing "indebtedness," and again paid in advance the "interest" on such additional "indebtedness." These borrowings and "interest" payments were repeated in 1954 and 1955, and the bonds were surrendered and the indebtedness was cancelled in 1956.
Held: the amounts paid as "interest" in 1953 and 1954 were not deductible from the gross income of the taxpayer and his wife in their joint income tax returns for those years as "interest paid . . . on indebtedness," within the meaning of § 23(b) of the Internal Revenue Code of 1939 and §163(a) of the Internal Revenue Code of 1954. Pp. 362-370.
(a) On the record in this case, it is patent that the transaction between the taxpayer and the insurance company was a sham which created no "indebtedness" within the meaning of those sections of the Codes. Pp. 362-366.
(b) Congress did not authorize deduction of such payments by enacting § 264(a)(2) of the Internal Revenue Code of 1954, which expressly denies a deduction for amounts paid on indebtedness incurred to purchase or carry a single premium annuity contract, but only as to contracts purchased after March 1, 1954. Pp. 367-370.
272 F.2d 200 affirmed.
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Chicago: U.S. Supreme Court, "Syllabus," Knetsch v. United States, 364 U.S. 361 (1960) in 364 U.S. 361 364 U.S. 362. Original Sources, accessed November 24, 2024, http://originalsources.com/Document.aspx?DocID=IUYWTWTE156ATRJ.
MLA: U.S. Supreme Court. "Syllabus." Knetsch v. United States, 364 U.S. 361 (1960), in 364 U.S. 361, page 364 U.S. 362. Original Sources. 24 Nov. 2024. http://originalsources.com/Document.aspx?DocID=IUYWTWTE156ATRJ.
Harvard: U.S. Supreme Court, 'Syllabus' in Knetsch v. United States, 364 U.S. 361 (1960). cited in 1960, 364 U.S. 361, pp.364 U.S. 362. Original Sources, retrieved 24 November 2024, from http://originalsources.com/Document.aspx?DocID=IUYWTWTE156ATRJ.
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