- 14 -
b. Whether Petitioner’s Disposition of the Funds Was
Restricted
Petitioner deposited the stock payment in an interest-
bearing account which he established solely to hold those funds.
He did not withdraw or otherwise use the payment or interest
credited to that account during the years at issue. However,
absence of use of funds by a taxpayer does not prevent inclusion
of the funds in income under the claim of right doctrine. See
Commissioner v. Alamitos Land Co., 112 F.2d 648, 650-651 (9th
Cir. 1940), revg. 40 B.T.A. 353 (1939) (funds received in
litigation were income in year paid even though the funds were
shown on the taxpayer’s books as a reserve to be repaid to an
adverse litigant if successful on appeal).
Petitioner argues that his use of the funds was restricted
by State law in that if he accepted the funds, Green Hills would
have negative retained earnings which is prohibited by California
and Delaware law.8 Even if payment of the funds to petitioner
violated State law, a subsequent determination to that effect
would not absolve petitioner from his tax liability in the year
of the receipt. See Healy v. Commissioner, supra; Wentworth v.
Commissioner, 510 F.2d 883, 886 (6th Cir. 1975), affg. T.C. Memo.
1973-199; Hamlett v. Commissioner, T.C. Memo. 2004-78.
8 The parties do not contend that the result on this issue
differs depending whether California or Delaware law applies.
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