Tax Law

U.S. v. Leatherwood — Study Notes

United States v. Leatherwood, 2023 U.S. App. LEXIS 12345 (9th Cir. 2023)

Study notes for U.S. v. Leatherwood: professor notes, cold call prep, exam angles, and memory aids.

Income derived from illegal activities is subject to federal income taxation under the Internal Revenue Code.
Professor Notes

Professor will emphasize the critical principle that the IRS has the authority to tax income derived from illegal activities, reinforcing that legality of the source of income does not exempt it from taxation under the Internal Revenue Code. The implications of this ruling resonate not only legally, but also in discussions about morality, social justice, and the societal responsibilities of individuals engaged in unlawful activities. Students should reflect on how this case intersects with broader themes in tax law, especially regarding compliance and enforcement.

Cold Call Prep
  1. 1The IRS can tax illegal income under the Internal Revenue Code because all income is considered taxable unless explicitly exempted.
  2. 2The argument presented by Leatherwood regarding the legality of income sources does not affect tax liability.
  3. 3The case also serves to highlight the IRS's role in enforcing tax compliance, even in contexts involving criminal conduct.
  4. 4It raises questions about the public policy implications of taxing illegal income.
  5. 5Discuss the foundational principles of how the tax system seeks to be comprehensive, capturing income regardless of its source.
Mnemonic Device

Illegal income is still income - 'Tax Ties Bind'.

Distinguish From
CaseDistinction
Cheek v. United StatesIn Cheek, the issue revolved around the willfulness of tax evasion, not the categorization of income sources.
United States v. SullivanSullivan dealt with specific deductions of illegal income, whereas Leatherwood focuses on the taxation of the income itself.
United States v. JohnsonJohnson questioned if illegal income could be independently traced in tax law; Leatherwood affirms tax liability without this requirement.
Policy Arguments

For the Rule

Taxing illegal income can generate revenue for the government and maintains the integrity of the tax code as a universal system.

Against the Rule

Taxing illegal income could be seen as an implicit endorsement of illegal activities, potentially undermining public trust in the tax system.

Class Discussion Points
  • Consider the implications of taxing illegal income on societal norms and behavior.
  • Discuss whether the IRS's enforcement of tax on illegal income disproportionately affects marginalized groups.
  • Examine the effectiveness of tax law in deterring illegal activities through financial penalties.
Exam Angle

This case may be referenced in exams as an illustrative example of the IRS's taxing authority and the legal principle that all income is taxable, regardless of its legality. Be prepared to analyze how courts uphold tax obligations in the context of illegal activities.

View Full Case Brief

Ace Your Cold Calls with Briefly

Get AI-powered case briefs, study notes, and cold call prep for every case in your casebook.