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Gross income includes all income from whatever source
derived. See sec. 61(a). Interest received is specifically
included within the definition of gross income. See sec.
61(a)(4). Generally, any portion of a judgment that compensates
taxpayers for delay in receipt of money constitutes interest
income and is taxable as such. See Kieselbach v. Commissioner,
317 U.S. 399, 403 (1943).
Petitioner contends that the portions of the installment
payments received from her ex-spouse in 1994 and 1996 that were
denominated as interest (namely, $10,664 and $4,950,
respectively) represented postdivorce appreciation in the value
of her ex-spouse’s law practice and that these amounts should be
treated as nontaxable transfers under section 1041. To the
contrary, it is clear that the above amounts compensated
petitioner for delay in the receipt of the marital assets to
which petitioner was entitled as of the day of the divorce. The
amounts received are consistent with the 5.5-percent interest
rate specified in the agreement.4 The $10,664 and the $4,950
that petitioner received in 1994 and 1996 constitute interest
income.
4 Assuming that the installment payments were paid on time each
year, the approximate interest to be received each year by
petitioner on $150,000 payable in 5 annual installments of
$30,000 would be $8,250 in year 1, $6,600 in year 2, $4,950 in
year 3, $3,300 in year 4, and $1,650 in year 5.
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Last modified: May 25, 2011