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of the embezzlement cases, the court, in that case, decided, that
the result in the embezzlement case(s) “cannot be limited only to
embezzlers; instead, the statute’s ‘unrestricted right’ language
must be read to exclude from its coverage all those who receive
earnings knowing themselves to have no legal right thereto.”
Perez v. United States, 553 F. Supp. 558, 561 (M.D. Fla. 1982).
In a memorandum opinion of this Court, the generalized
holding of Perez was relied upon in circumstances where a lawyer
converted his client’s trust fund to his own use. O’Hagan v.
Commissioner, T.C. Memo. 1995-409. Factually, however, it is
difficult to distinguish a lawyer’s conversion of a client’s
funds entrusted to him from other forms of embezzlement. In both
instances, the taxpayer did not have and knew he did not have a
claim of right or appearance of unrestricted right to the funds.
Any analysis of the “claim of right” concept in conjunction
with embezzlement cases must focus on a line of cases surrounding
James v. United States, 366 U.S. 213 (1961). In James, the
Supreme Court reversed its holding in Commissioner v. Wilcox, 327
U.S. 404 (1946), that embezzled funds were not includable in
gross income. Wilcox was, in part, predicated on the embezzler’s
lack of “a claim of right to the alleged gain”. 327 U.S. at 408.
In James v. United States, supra at 219, the Court reasoned that
When a taxpayer acquires earnings, lawfully or
unlawfully, without the consensual recognition, express
or implied, of an obligation to repay and without
restriction as to their disposition, “he has received
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