Betty June Dykstra and Pieter Dykstra - Page 5

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          count of grand theft under California Penal Code section                    
          487(b)(3)(West 1999).                                                       
          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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