20

1. Cohan v. Commissioner, 39 F.2d 540 (Circuit Court of Appeals, 2nd Circuit 1930). The Court allowed the taxpayer to estimate his expenses.
2. Commissioner v. Tellier, 383 U.S. 687 (1966). Under IRC Section 162(a), “ordinary and necessary” expenses of a trade or business, whether legal or illegal, are allowable deductions. Furthermore, the Court emphasizes that the purpose of the income tax is to not serve as a sanction against wrongdoing (the US Supreme Court referenced the Senate debate from 35 years earlier).
3. Doyle v. Mitchell Brothers Company, 247 U.S. 179 (1918). The Court defined “gross income” as the amount of the proceeds reduced by the “cost” basis. In other words, gross income is not equivalent to gross receipts.
4. Edmondson v. Commissioner, T.C. Memo, 1981-623, 42 TCM 1533 (1981). The Court allowed COGS reductions and trade and business deductions to arrive at the amount of taxable income.
5. James v. United States, 366 U.S. 213 (1961). The US Supreme Court recognized that any “accession to wealth” whether from a legal or illegal source is taxable income. Stated another way, income is income from whatever source derived.
6. Wood v. Commissioner, 863 F.2d 417 (5th Circuit 1989).

NOTES