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"fixed or unconditional right to receive" income, petitioners
argue that they were not required to report any income they may
have had from the check exchanges until the matter was finally
resolved during 1993 in the bankruptcy proceeding. Petitioners'
argument is premised on their contention that the check exchanges
represent the heart of respondent's bank deposits analysis and
that the analysis would be defective if any income from the
exchanges were not taxable for 1990. Respondent argues that
under the claim of right doctrine petitioners should report the
excess of M&L payments over their payments to M&L. We agree with
respondent.
The principle of the doctrine is explained in the following
quotation from Healy v. Commissioner, 345 U.S. 278, 281-282
(1953):
Not infrequently, an adverse claimant will contest
the right of the recipient to retain money or property,
either in the year of receipt or subsequently. In
North American Oil v. Burnet, 286 U.S. 417 (1932), we
considered whether such uncertainty would result in an
amount otherwise includible in income being deferred as
reportable income beyond the annual period in which
received. That decision established the claim of right
doctrine "now deeply rooted in the federal tax system."
The usual statement of the rule is that by Mr. Justice
Brandeis in the North American Oil opinion: "If a
taxpayer receives earnings under a claim of right and
without restriction as to its disposition, he has
received income which he is required to * * * [report],
even though it may still be claimed that he is not
entitled to retain the money, and even though he may
4(...continued)
(4th Cir. 1940); H. Liebes & Co. v. Commissioner, 90 F.2d 932,
938 (9th Cir. 1937), affg. 34 B.T.A. 677 (1936).
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