-47-
Schedule C income from operation of the business school be
increased by $34,544 will be sustained. In accord with the
parties' agreement, a corresponding reduction will be made in
petitioners' 1991 Schedule C income from operation of the
business school.
Vehicle Resale Business
As to the vehicle resale business, on brief petitioners
state: "it does appear possible that at least a portion of the
income on the cash basis should have been reported in 1990."
Petitioners admit that $38,000 was received via wire transfer
during 1990.
At trial, petitioner testified that he received the wire
transfer in 1990 but that, if he had been unable to deliver the
cars as specified in the agreement, the money would have been
returned to Kortava. However, the parties modified the agreement
so that petitioner did not have to return any of the money.
As a general rule, cash basis taxpayers, such as
petitioners, must report income upon its receipt. Sec. 451(a).
Petitioners' argument appears to be that, although $38,000 was
received in 1990, the money was subject to a contractual
restriction that prohibited it from being income in 1990.
Respondent's determination is based on the claim of right
doctrine.
Income received under a claim of right is taxable in the
year received even though the recipient may be under a contingent
obligation to return it at a later time. North Am. Oil Consol.
Page: Previous 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 NextLast modified: May 25, 2011