- 19 - A claim of right exists when property or funds are received and treated by a taxpayer as belonging to him. See Healy v. Commissioner, 345 U.S. 278, 282 (1953). Income received under a claim of right is taxable in the year of receipt even though the taxpayer may be required to return it at a later time. See North Am. Oil Consol. v. Burnet, 286 U.S. 417, 424 (1932). If, in a subsequent year, the claim to the funds or property is determined to be invalid, the taxpayer would be entitled to a deduction in the year of repayment. However, the amount of tax due and reported in the year of receipt is unaffected by the return of property or funds. See United States v. Skelly Oil Co., 394 U.S. 678, 680-681 (1969). Property or funds are not received under a claim of right when there is a substantial restriction on its disposition or use, or when there is a fixed obligation to return the property or funds received. See Indianapolis Power & Light Co., supra at 209; Hope v. Commissioner, 55 T.C. 1020, 1030 (1971), affd. 471 F.2d 738 (3d Cir. 1973). In Indianapolis Power & Light Co., the Supreme Court dealt with the issue of whether deposits, paid by customers to assure the taxpayer of payment for future electricity, were required to be included in income. The deposits were received by the taxpayer subject to an express obligation to repay either at the time service was terminated or at the time a customer established good credit. So long as a customer fulfilled his legalPage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
Last modified: May 25, 2011