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Year Principal Interest
1991 $6,582 $9,000
1992 7,174 8,408
1993 7,820 7,762
Petitioner, who computed her Federal income tax liabilities for
the years in issue using the cash receipts and disbursements
method of accounting, did not include any of the above-mentioned
payments, or portions thereof, in the income she reported on her
1991, 1992, or 1993 Federal income tax returns.
In the notice of deficiency, respondent determined that the
interest portion of each payment petitioner received from Mr.
Gibbs pursuant to the divorce decree must be included in income
in the year received and adjusted her income for each year in
issue accordingly.
Discussion
Unless specifically excluded, section 61 defines gross
income to mean income from whatever source derived, including
interest. Sec. 61(a)(4). Normally, interest is defined to
include a payment made to compensate for the delay in receipt of
an amount otherwise due. Aames v. Commissioner, 94 T.C. 189, 193
(1990). In many cases, interest is paid and received pursuant to
a contractual arrangement, but a taxpayer can realize interest
income from nonconsensual withholding of property as well.
320 East 47th St. Corp. v. Commissioner, 243 F.2d 894, 896 (2d
Cir. 1957), revg. on another issue 26 T.C. 545 (1956).
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