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enjoy at his own option may be taxed to him as his income,
whether he sees fit to enjoy it or not.”).
Petitioner assumes he did not have taxable receipt of the
settlement proceeds because the funds were paid directly from
United Ready Mixed to petitioner’s attorney and did not pass
through his hands. However, taxable receipt is not limited to
physical receipt by the payee. Taxable receipt also occurs when
funds are received by the payee’s agent on the payee’s behalf10
or by a creditor of the payee on account of the payee’s debt.11
10“[R]eceipt by an agent is receipt by the principal.”
Arnwine v. Commissioner, 696 F.2d 1102, 1107 (5th Cir. 1983),
revg. 76 T.C. 532 (1981). Therefore, any agreement between the
payee and the payee’s agent to defer recognition of the income is
ineffective to defer taxable receipt. Id.; Warren v. United
States, 613 F.2d 591 (5th Cir. 1980) (attempt by farmer through
agreement with cotton gin to defer recognition of income from
sale of cotton ineffective because gin was acting as agent for
farmer in receiving sale proceeds).
11Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729
(1929), held that an employer’s payment of the employee’s taxes
constituted receipt by the employee:
The payment of the tax by the employers was in
consideration of the services rendered by the employee
and was a gain derived by the employee from his labor.
The form of the payment is expressly declared to make
no difference. * * * It is therefore immaterial that
the taxes were directly paid over to the Government.
The discharge by a third person of an obligation to him
is equivalent to receipt by the person taxed. * * * We
think therefore that the payment constituted income to
the employee.
See also Young v. Commissioner, 113 T.C. 152 (1999) (applying
rule of Old Colony Trust Co. to sale proceeds paid directly to
taxpayer’s attorney), affd. 240 F.3d 369 (4th Cir. 2001).
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