Richard R. Hamlett - Page 10

                                       - 10 -                                         
               U.S. 278, 281 (1953); fn. ref. omitted), the receipt of                
               funds, without restriction as to use or disposition, must              
               trigger the incidence of taxation, unless “in the year of              
               receipt a taxpayer recognizes his liability under an                   
               existing and fixed obligation to repay the amount received             
               and makes provisions for repayment.”  Hope v. Commissioner,            
               55 T.C. 1020, 1030 (1971), affd. 471 F.2d 738 (3d Cir.                 
               1973), cert. denied 414 U.S. 824 (1973).  As we have stated,           
               “The mere fact that income received by a taxpayer may have             
               to be returned at some later time does not deprive it of its           
               character as taxable income when received” (Woolard v.                 
               Commissioner, 47 T.C. 274, 279 (1966); citations omitted),             
               and the claim of right doctrine will apply “notwithstanding            
               that the taxpayer may be under a contingent obligation to              
               restore the funds at some future point” (Professional                  
               Insurance Agents of Michigan v. Commissioner, 78 T.C. 246,             
               270 (1982); citations omitted).  Where the taxpayer is                 
               required to repay some or all of the money in a later year,            
               a deduction may then be available to him in the later year             
               to the extent permitted by law (see Krim-Ko Corp. v.                   
               Commissioner, 16 T.C. 31, 40 (1951)),8 but the amounts are             
               income nonetheless in the year of receipt.                             
               8  Sec. 1341, I.R.C. 1954, offers even greater relief, in              
               certain circumstances, by allowing the taxpayer to choose,             
               in the year of repayment, between a deduction for the amount           
               of the repayment and, in effect, a credit for the amount of            
               tax that would have been saved in the year of inclusion if             
               the repaid amount had been excluded from that year’s gross             
               In the instant case, petitioner received the $100,000 from             
          Parker in 1996.  We assume that petitioner was a cash basis                 
          taxpayer.  See Rubnitz v. Commissioner, 67 T.C. 621, 627 n.7                
               1.  Restrictions on Use                                                
               The record does not include any evidence that petitioner was           
          restricted in his use of this $100,000.  On brief, petitioner               
          discusses the restriction-on-use question and asserts: “In the              

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  Next

Last modified: May 25, 2011