Corporations That Weren't: The Taxation of Firm Profits in Historical Perspective

32 Pages Posted: 21 Apr 2010 Last revised: 24 May 2010

See all articles by Richard Winchester

Richard Winchester

Seton Hall Law School; Thomas Jefferson School of Law

Date Written: April 21, 2010


This article examines the nation's earliest income tax laws, focusing on the provisions that tax business profits in a way that disregards a firm's state law business form. Broadly speaking, this practice dates back to the Civil War era, when a firm's state law business form made no difference in how its profits were taxed. After the adoption of the Sixteenth Amendment, however, Congress decided to give partial tax relief to undistributed corporate profits, largely on the theory that the firm could and would reinvest those profits in its business. But Congress denied that tax relief to a corporation in certain instances, and it also extended the relief to certain unincorporated firms in a narrow range of situations. This study of those provisions reveals how these measures implicitly reaffirmed the Congressional justification for the partial tax relief on undistributed corporate profits. The study also considers the extent to which each of these measures served the larger interests of equity.

Keywords: corporate taxation, partnership taxation, corporate tax history, income tax, corporations, unincorporated firms

JEL Classification: K10, K34

Suggested Citation

Winchester, Richard, Corporations That Weren't: The Taxation of Firm Profits in Historical Perspective (April 21, 2010). Southern California Interdisciplinary Law Journal, Vol. 19, No. 3, p. 501, 2010, Thomas Jefferson School of Law Research Paper No. 1593806, Available at SSRN:

Richard Winchester (Contact Author)

Seton Hall Law School ( email )

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Thomas Jefferson School of Law ( email )

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