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F.3d 353 (5th Cir. 2000), revg. in part, affg. in part, and
remanding T.C. Memo. 1998-362; Davis v. Commissioner, 210 F.3d
1346 (11th Cir. 2000), affg. T.C. Memo. 1998-248.
Respondent, however, raises a different theory here than the
one that was decided in Kenseth. Respondent’s primary argument
is that Cotnam was wrongly decided by the Court of Appeals. If
this Court decides that the Cotnam rationale was correct, then
respondent argues that under the rationale of Cotnam, petitioner
recognized gain on the initial transfer of his interest to his
attorneys.
Respondent’s alternative argument may be summarized as
follows: (1) Cotnam holds “At the time that * * * [the taxpayer]
entered into the contingent fee contract, she had realized no
income from the claim, and the only use she could make of it was
to transfer a part so that she might have some hope of ultimately
enjoying the remainder.” Cotnam v. Commissioner, 263 F.2d at
125. (2) Ordinarily the above-described transfer could result in
income for the year of the transfer, depending on the
transferor’s basis, because legal services are received in
exchange for the transfer. (3) In petitioner’s case, 1990 was
the year of transfer and 1994 the year of the recovery, but the
open transaction doctrine causes the deferral of the gain to 1994
because the amount or value of the transfer was not determinable
until the lawsuit settlement.
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