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still be adjudged liable to restore its equivalent."
286 U.S., at 424.
The phrase "claim of right" is a term known of old
to lawyers. * * * There is a claim of right when
funds are received and treated by a taxpayer as
belonging to him. The fact that subsequently the claim
is found to be invalid by a court does not change the
fact that the claim did exist. * * * [Citation
omitted; fn. refs. omitted.]
Petitioners, on the cash basis, had an excess of receipts
over payments for the 1990 taxable year in their exchanges with
M&L. Petitioners claimed as their own that excess and did not
make any claim in the bankruptcy estate until 1993.
Additionally, they resisted and denied any liability in
connection with the trustee's claim against them. Petitioners
were made aware by their bookkeeper that if they were ahead of
M&L at the close of the taxable year, they were liable for
reporting the same as income. Even though petitioners have
argued that they were engaged in the check exchanges with M&L as
a convenience, the record supports our finding that they expected
to be and were compensated for assisting M&L in maintaining float
and for their participation in the kiting scheme. After the
fact, the bankruptcy trustee sought a substantial amount from
petitioners, and petitioners made a $140,000 claim against the
bankrupt's estate. Ultimately, however, petitioners settled the
dispute by their payment to the bankruptcy estate of $280,000,
part in 1993 and the remainder in 1994. Petitioners could have
accounted for the exchanges with M&L and known the amount they
were ahead or behind, but they chose not do so and did not
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