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It is our view that this situation does not fall within the
parameters of the open transaction doctrine, which is limited to
rare and extraordinary circumstances. Estate of Wiggins v.
Commissioner, 72 T.C. 701, 708 (1979). Here we find that Mr.
Premji has failed to carry his burden of proof that it was
uncertain he would recover his principal.
Mr. Premji overlooks the fact that M&L returned the full
amount of his principal during August 1990. He conceded that he
received a $20,000 check representing the full amount of his
principal each time he received a $2,000 interest check.
Although he cashed the $2,000 checks, he voluntarily chose not to
liquidate his investment by cashing any one of the $20,000
checks. Instead, Mr. Premji chose to reinvest that amount by
returning each $20,000 check to M&L.
The record contains no bank account statements for M&L or
other evidence that any one of these $20,000 checks would not
have been honored on presentment during the month of August.
Contrary to Mr. Premji's assertion that his principal might not
be repaid, it was made available to him. He voluntarily chose to
reinvest that principal rather than liquidate the investment.
Consequently, we hold that Mr. Premji has not shown that it
was uncertain he would recover his $20,000 principal and that the
open transaction doctrine applies in these circumstances. Thus,
the $8,000 interest he received in 1990 constitutes gross income
in that year.
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