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remainder of the purchase price and when petitioners delivered
the executed deed conveying title to Phase II in fee simple to
CDC. If the sale was not consummated, section 6(c)(ii) of the
Agreement fixed petitioners’ right to retain the deposits only if
CDC breached.
Respondent argues that the claim of right doctrine applies
and the deposits received by petitioners should be included in
their gross income in the year received. The Supreme Court case
North Am. Oil Consol. v. Burnet, 286 U.S. 417 (1932), established
the elements of the claim of right doctrine. The three basic
elements are: (1) The taxpayer receives money or property, (2)
under a claim of right, and (3) the taxpayer has control over the
use or disposition of the money or property. Id. at 424.
Amounts received under a claim of right, without restriction as
to their disposition, are taxable when received even though the
taxpayer may have a contingent obligation to restore the funds at
some future point. Id.
It is clear that petitioners received the deposits to which
they were entitled under the Agreement, and that they exercised
control over the use and disposition of those deposits. However,
we conclude that the claim of right doctrine does not apply to
the instant case. Petitioners received the amounts pursuant to
the Agreement for the sale of real property. Therefore, cases
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