Samantha Ding

ACCT 5613 Tax Research Case Briefs Cesarini v. United States Facts: - Cesarini purchased a piano for $15 and later found $4,467 in cash inside the piano - Cesarini initially reported this as income, but then filed an amended return, seeking a refund Issue: - Should found money be included as income? Holding: - Judge Young held that found money should be included as gross income Reasoning: - The 16th amendment broadly provides that all income is to be included unless a specific exception can be cited Rev. Rul. 61, 1953-1 Cum.Bull. 17 the finder of a treasure trove is in receipt of taxable income, for Federal income tax purposes, to the extent of its value in United States currency, for the taxable year in which it is reduced to undisputed possession.

P found money in piano, included it income and filed an amended return to get taxes paid refunded arguing the money was not income under Sec. 61, if so, statute of lim. Had run, and if so, not ordinary but capital. Treasure trove (finding $) is taxable income in year found & ordinary income. We have a voluntary tax system b/c taxpayers self report by filing returns every year. Whether something is includable in income is diff question than whether it was actually reported. Burden of proof rests w/ taxpayer to show its not includable. Generally, IRS/T has only 3 years to make a claim for $. (SOL issue can sometimes be raised) The way the court handled this case is how we should do our ANALYSIS: What is "income"? 1. 61 - Court first looks at list of 15: if its on the list its included 2. 71 - Court then looks at other specific inclusions 3. 101 - Court then looks to other specific exclusions 4. Look at Treasury Regs

1.61-1(a): Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. (ie: income from all sources is taxed unless the taxpayer can point to an express exemption, b/c of broad language of 61 IRC)) 1.61-14(a): "Treasure Trove, to the extent of its value in US currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession." "Reduced to undisputed possession" (ie: when title vests) is a state law question: here title rested when actually found the $ in the piano. Its a property law question, so we look to state law)

Cesarini v. United States Money finders (P) v. Government (D) 296 F. Supp 3 (N.C. Ohio 1969) Nature of Case: Action by taxpayers for recovery of income tax payments. Fact Summary: The Cesarinis (P), after finding money in a piano and declaring it on their taxes, filed an amended tax return that removed the funds in question from gross income. Rule of Law: Unless expressly excluded by law, gross income includes all income from whatever source derived. Facts: In 1957, Mr. and Mrs. Cesarini (P) purchased a used piano. In 1964, while cleaning the piano, they discovered $4,467 in old currency. The original owner of the money was unascertainable, and the Cesarinis (P) exchanged the old currency for new. They then declared the money as ordinary income from other sources on their 1964 joint income tax return. On October 18, 1965, the Cesarinis (P) filed an amended return eliminating the sum of $4,467 from the gross income computation and requesting a refund in the amount of $836.51, the tax paid on the discovered funds. On January 18, 1966, the Commissioner of Internal Revenue (D) rejected the refund claim in its entirety. The Cesarinis (P) filed an action in U.S. district court to recover the taxes paid on the discovered funds. Issue: Is money found by chance excludable from gross income since the tax code does not contain a section expressly taxing treasure trove? Holding and Decision: (Young, J.) No. Unless expressly excluded by law, gross income includes all income from whatever source derived. Section 61(a) of Title 26 U.S.C. is the starting point for determining what should be included in gross income. The definition of gross income is expansive, limited only by express exclusion of specific items. The Supreme Court has frequently held that such all-inclusive language defining gross income was intended by Congress to reach the full measure of its taxing power under the Sixteenth Amendment. In this case, the Cesarinis (P) increased their wealth by the discovery of treasure trove. They argue that since Congress recently enacted code sections that expressly included the value of prizes and awards in gross income computation, and specifically exempted gifts, the intent was to place treasure trove in the category of gift, making treasure trove nontaxable. But this argument overlooks the basic principle that unless an explicit exemption can be identified, income from any source is included in gross income calculation. The Cesarinis (P) claim is denied.

Analysis: Finding a comprehensive definition of income has proven nearly impossible. The solution has generally been to start with the proposition that any benefit received is income, and then remove specific circumstances from the definition. In this case, discovered wealth is not exempted from the definition of gross income, thus becoming taxable. And since there is not a compelling reason, such as misplaced economic incentives, to exempt treasure trove, it is unlikely to ever be exempted from the definition. Quicknotes: Gross income The total income earned by an individual or business. 1. Bargain Purchases a. Found treasure: taxed any accession to wealth that you have complete dominion over is taxable (Reg. 1.61-14) 1) In the case of non-cash (e.g., gold nuggets), taxed when sold w/basis of FMV when found b. If a market transaction and a good deal (e.g., antique bought in ME for less than value), then bargain purchase; if related parties, then a gift and 83 says the value difference is taxable 1) Turns on the relationship b/w the buyer and the seller 2) Also, if you find cash inside the antique, thats taxable (not a bargain purchase) c. Finding something that you didnt bargain for (taxable) is different from buying something with a different value than what you thought (not taxable bargain purchase) d. Cesarini v. United States; N.D.Ohio 1996 (affd 6th Cir. 1970); cash found in piano taxable