- 23 -
the taxpayer settled the civil suit by disgorging to the option
brokers part of his profit from the sale of the options. In
Barrett, the taxpayer was allowed to use section 1341 after the
Court found “that the taxpayer did not have an unrestricted
right” to the profits, or in other words, “that the taxpayer had
a legal obligation to restore the item.” Id. at 718-719.
Although Barrett is factually similar to the case under
consideration, the holding in that case concerned section
1341(a)(2). The Court in Barrett, however, did not consider
whether there was a claim of right or the appearance of
unrestricted right to income from option purchases. The focus in
Barrett was whether the repayment was due to a restriction on the
taxpayer; i.e., whether the taxpayer had an obligation to pay the
option brokers who had sued him. Because of our holding that
petitioner did not meet the first prong of the section 1341
requirements, we need not consider whether petitioner met the
other requirements of section 1341.
Accordingly, petitioner does not qualify for section 1341
treatment with respect to the disgorgement payment.
Additions to Tax for Fraud Under Section 6653
The next issue for our consideration is whether petitioner
is liable for additions to tax for fraud under section
6653(b)(1)(A) and (B) or, in the alternative, for negligence
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011