- 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
income.
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
(1977).
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
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