- 51 -
for California workers' compensation coverage. By December 31,
1984, petitioner had incurred workers' compensation losses in
California that had been paid by Liberty Mutual in the amount of
$2,714,500. Respondent disallowed $11,527,41524 deducted on
petitioner's 1984 return. After concessions, the amount in
dispute with respect to the Liberty Mutual policy has been
reduced to $11,151,675.25
OPINION
I. Excess Value Charges
Respondent determined that EVC's in the amount of
$99,794,790 must be included in petitioner's 1984 income pursuant
to section 61. Section 61(a) provides in part that "gross income
means all income from whatever source derived". It is
fundamental to our system of taxation that income must be taxed
to the one who earns it. See Commissioner v. Culbertson, 337
24This amount represents the difference between the total of
$14,241,915 of deductions and the $2,714,500 actually paid out by
Liberty Mutual Fire in 1984 claims.
25Respondent conceded a total of $375,740. See supra note
2. Thus, respondent's initial disallowance of $11,527,415 has
been reduced by $375,740 to $11,151,675. The $375,740 conceded
by respondent is made up of $325,740, representing a 12-percent
claim adjustment expense for losses paid in 1984 plus $50,000 in
premiums paid to Liberty Mutual for risk associated with claims
over $250,000.
The $325,740 conceded amount was calculated by respondent to
be an allocation of a portion of the total $1.2 million retained
by Liberty Mutual based on the ratio of 1984 claim payments to
total 1984 claims paid between 1984 and 1994.
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