VAN CLEAVE V. UNITED STATES
718 F.2d 193 (6th Cir. 1983)
NATURE OF THE CASE: This was a dispute over a refund claim against revised income. Van
Cleave (P) challenged a decision, which denied P favorable income tax treatment under 26
U.S.C.S. 1341 when P paid back excessive compensation to the corporation that employed him.
FACTS: P was president and majority stockholder of VanMark Corporation. In 1969, the
corporation adopted a bylaw that required corporate officers who received income determined
by the IRS as excessive and thus not deductible by the corporation as a business expense, to
pay back the amount determined to be excessive. P also entered into a separate agreement
requiring him to reimburse the corporation for nondeductible compensation. In 1974, P got
$322,000 in salary and bonuses. The IRS determined that $57,500 was excessive and could not
be deducted by the corporation. P then repaid the $57,500 in 1975. On his 1975, return P
calculated his tax liability under 1341. The IRS allowed the deduction for 1975 but did not
allow use of 1341. This resulted in a deficiency of $5,987.34. After paying, P sued for a
refund of this deficiency.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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