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value; and (2) 25 percent of the payments petitioner received in
1999 is includable in his 1999 gross income. Conversely,
respondent asserts that pursuant to section 691(a), the payments
received by petitioner constitute IRD and are includable in their
entirety in petitioner’s 1999 gross income. Sec. 691(a).
We first address whether the payments received by petitioner
constitute IRD. A main principle underlying our system of income
taxation is that an item of gross income becomes taxable when a
taxpayer includes it in gross income under his or her method of
accounting. Sec. 451. This principle should still apply in
situations where an individual has a legal right to an item of
gross income, but dies before reporting it. Kitch v.
Commissioner, 104 T.C. 1, 10 (1995), affd. 103 F.3d 104 (10th
Cir. 1996) (citing Rollert Residuary Trust v. Commissioner, 80
T.C. 619, 636-637, 642-643 (1983), affd. 752 F.2d 1128 (6th Cir.
1985)). “Section 691 promotes this principle by taxing property
received after an individual’s death if the property would have
been includable in gross income had the individual lived.” Kitch
v. Commissioner, supra at 10.
Section 691 provides that a taxpayer’s gross income includes
IRD. See also sec. 61(a)(14). IRD consists of amounts: “(1) Of
gross income, (2) which the decedent was entitled to receive at
the time of death, (3) but were not properly includable in the
decedent’s gross income under the decedent’s method of accounting
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