Susan L. Ketchum v. Commissioner of Internal Revenue

If I understand my colleagues’ position, it is that, to the extent the Commissioner’s disallowance of deductions from a Subchapter S corporation’s gross income moves the corporation’s taxable income from the red into the black, the amount involved should be treated as an “increase”, or actually the creation, of taxable income. That amount, my colleagues hold, can then be treated, under section 6013(e) of the Internal Revenue Code, as omitted income of the wife of the corporation’s sole shareholder. I respectfully disagree.

The existence vel non of income is not determined by bookkeeping…