The determinations in respondent's notice of deficiency are presumed
correct, and petitioners bear the burden of proving otherwise. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 61(a) defines gross income to include "all income from whatever
source derived". In addition, the Supreme Court has determined that gross
income includes all "'accessions to wealth, clearly realized, and over which
the taxpayers have complete dominion'", including illegal earnings. James v.
United States, 366 U.S. 213, 219 (1961) (quoting Commissioner v. Glenshaw
Glass Co., 348 U.S. 426, 431 (1955)); accord Rutkin v. United States, 343 U.S.
130, 137-138 (1952); Ianniello v. Commissioner, 98 T.C. 165, 173 (1992).
Borrowed funds are not included in the taxpayer's gross income "because
the taxpayer's obligation to repay the funds offsets any increase in the
taxpayer's assets". United States v. Centennial Sav. Bank FSB, 499 U.S. 573,
582 (1991); accord Moore v. United States, 412 F.2d 974, 978 (5th Cir. 1969);
United States v. Rochelle, 384 F.2d 748, 751 (5th Cir. 1967). The hallmarks
of a loan are: (1) Consensual recognition between the borrower and the lender
of the existence of the loan, i.e., the obligation to repay; and (2) bona fide
intent on the part of the borrower to repay the funds advanced. Collins v.
Commissioner, 3 F.3d 625, 631 (2d Cir. 1993), affg. T.C. Memo. 1992-478.
There is no credible evidence in the record of any loan agreement
between U.S. Life and Mr. Burke. Rather, the evidence clearly establishes
that Mr. Burke was obligated to place all MPC premiums in a special premium
bank account. From this account, Mr. Burke was permitted to withdraw his 15-
percent annualized commission, but he was obligated to remit the remaining
amounts to U.S. Life. Mr. Burke never received permission from U.S. Life to
take any amounts from the MPC premium account in excess of his commissions.
When U.S. Life realized it was not receiving its portion of the premiums in a
timely fashion, it made inquiries and demanded payment. Mr. Burke responded
with false statements and never told U.S. Life that he had "borrowed" the
money from the premium account. Eventually, U.S. Life brought suit and
obtained a judgment against Mr. Burke.
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