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count of grand theft under California Penal Code section
487(b)(3)(West 1999).
OPINION
The Conoco Payments Are Income
Respondent received Forms 1099 stating that petitioners
earned $2,398 and $2,031 in 1994 and 1995, respectively, from
Conoco. Respondent determined that these amounts were includable
in petitioners' taxable income. Petitioners did not report these
amounts on their 1994 return.
Petitioners argue that these amounts were never received by
them but rather were paid to the well's operator, Lauck, in
satisfaction of a mechanic's lien filed against petitioners'
interest. Petitioners claim that Lauck kept more than it was
owed from the royalty payments and failed to forward the excess
to petitioners. Petitioners, therefore, contend that they should
not be taxed on the royalty payments they never received.
It is well settled that income is taxed to the person who
earns it and enjoys the benefit of it when paid. See Helvering
v. Horst, 311 U.S. 112, 119 (1940); Corliss v. Bowers, 281 U.S.
376, 378 (1930); cf. Commissioner v. P.G. Lake, Inc., 356 U.S.
260, 267 (1958); Old Colony Trust Co. v. Commissioner, 279 U.S.
716, 729 (1929). Petitioners do not dispute that royalties were
paid by Conoco to Lauck in satisfaction of a valid mechanic's
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