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While the Supreme Court in James held that an explicit or
implicit consensual recognition of the taxpayer’s obligation to
repay a given sum is sufficient to avoid that sum's being treated
as income pursuant to the claim of right doctrine, the Court did
not elaborate on what constitutes a “consensual” recognition.
Numerous cases discussing the tax implications of the receipt of
misappropriated funds have since interpreted the phrase (either
explicitly or through application) as requiring a recognition of
the repayment obligation on the part of the obligee as well as
the obligor. See Webb v. IRS, 15 F.3d 203, 207 (1st Cir. 1994);
Collins v. Commissioner, 3 F.3d 625, 632 (2d Cir. 1993), affg.
T.C. Memo. 1992-478; Solomon v. Commissioner, 732 F.2d 1459, 1461
(6th Cir. 1984), affg. T.C. Memo. 1982-603; Moore v. United
States, 412 F.2d 974, 980 (5th Cir. 1969); Howard v.
Commissioner, T.C. Memo. 1997-473.
The present case, however, does not involve the receipt of
misappropriated funds. Petitioner did not acquire the customer
overpayments through any form of deceit; rather, the overpayments
were the product of inattentive bookkeeping on the part of
petitioner’s customers. Furthermore, there is no indication that
petitioner acted in bad faith with respect to the overpayments.
When petitioner processed the customer’s payment and realized
that the customer had remitted an amount in excess of the amount
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