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unauthorized use of funds from which the principal derives no
benefit. Alsop v. Commissioner, 290 F.2d 726, 728 (2d Cir.
1961), affg. 34 T.C. 606 (1960); Grant v. Commissioner, T.C.
Memo. 1995-29, affd. on another issue 103 F.3d 948 (11th Cir.
1996). However, if the principal derives an economic benefit
from the agent’s actions, the principal constructively receives
the income even though the agent took unauthorized action to the
detriment of the principal. Sowell v. Commissioner, 302 F.2d
177, 179-180 (5th Cir. 1962), revg. T.C. Memo. 1961-115; Wells v.
Commissioner, T.C. Memo. 1967-154.
Mr. Davis, as petitioner’s attorney, was acting as
petitioner’s agent when he properly received the settlement
proceeds from Kits. See Estate of Kamm v. Commissioner, 349 F.2d
953, 956 (3d Cir. 1965), affg. T.C. Memo. 1963-344. Therefore,
in the absence of an exception to the general rule, the money
received by Mr. Davis was constructively received by petitioner.
Petitioner asserts that he did not authorize Mr. Davis to
retain any portion of the $15,000 to which petitioner was
entitled pursuant to the settlement agreement. He also states
that he never expressed to Mr. Davis an interest in either
participating or investing in the store manager case. After
receiving the $12,500 check, petitioner asked Mr. Davis on
several occasions to send him the remaining $2,500, but he never
received these funds. Mr. Davis responded to petitioner’s
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Last modified: May 25, 2011