- 12 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011