Knetsch v. United States (1960)
- Docket
- 23
- Decided
- 1960-01-01
- Category
- General
Summary
Question: Did the transaction between Knetsch and the insurance company create an indebtedness within the meaning of the Internal Revenue Code? Conclusion: No. In a 6-3 decision, Justice William J. Brennan wrote for the majority affirming the lower court's decision that the transaction was a sham. The loans the insurance company gave Knetsch were essentially rebates for a substantial portion of the interest payments and the small amount kept by the company was its fee for providing a "façade of loans" to be used to provide tax deductions. Justice William O. Douglas dissented, saying that as long as a transaction is allowed within the limits of insurance policies it should be recognized by the Internal Revenue Service, and any remedy should be left to the legislature.