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did not report as gross income on any tax return the $57,500
difference between the $700,000 they received from CDC under the
Agreement during 1989 and 1990 and the $642,500 they paid to CDC
pursuant to the Mutual Release in 1992.7
During this entire period, petitioners remained in
possession of Phase II and retained all benefits and burdens of
ownership including liability for payment of taxes and insurance.
It does not appear from the record that CDC ever took possession
of Phase II.
OPINION
Respondent contends that petitioners received the payments
from Escrow Holder under a claim of right, without any
restrictions on their use, and, therefore, the payments are
included in income in the years of receipt.
Petitioners, on the other hand, contend that since escrow
never closed and the sale was never consummated, the deposits
made by CDC are not taxable to them. In the alternative,
7 We do not have jurisdiction with regard to 1992. We make
this finding of fact as to 1992 for completeness, but we draw no
conclusions with respect to petitioners’ tax liability for 1992
resulting from this transaction.
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Last modified: May 25, 2011