Stephen S. Wang, Jr. - Page 20

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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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