T.C. Memo. 2004-78
UNITED STATES TAX COURT
RICHARD R. HAMLETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8986-01. Filed March 22, 2004.
In 1996, P sold his stock in two S corporations to
Parker for $100,000. P received some of the $100,000 from
Parker in 1995, and the remainder in 1996, and transferred
his stock to Parker “effective” Dec. 31, 1995. P did not
report the transaction on his 1995 and 1996 tax returns. In
1998, P filed for bankruptcy. In 2000, the bankruptcy court
entered a consent order which, among other things, declared
the stock transfer void ab initio. On the same day, P
executed a 6-percent interest promissory note to Parker for
$135,000 (the $100,000 for the corporations plus $35,000 for
some partnership interests P sold to Parker, also in 1996).
By late 2003, P’s total payments to Parker under the
promissory note amounted to little more than the interest on
the note.
1. Held: Under the claim of right doctrine, P is
required to include the $100,000 in income for 1996 as
proceeds from the sale of the S corporations stock.
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