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funds does not show that petitioner unconditionally renounced his
right to the funds. Petitioner’s renunciation was not pursuant
to an “existing” or “fixed” agreement to return the funds. On
the contrary, petitioner intended to return the funds only if he
succeeded in rescinding O’Dowd’s buyout.10
d. Conclusion
As stated above, income is generally taxable in the year in
which the taxpayer receives it unless, under the method of
accounting used by the taxpayer, the amount is properly taxable
in another year. Sec. 451(a). Under the claim of right
doctrine, this principle applies to income received by a taxpayer
and over which the taxpayer has unrestricted use, even if the
taxpayer’s claim to the income is disputed by another party.
Petitioner accepted and kept the payment and related interest
10 Neither party cited Sohio Corp. v. Commissioner, 163
F.2d 590 (D.C. Cir. 1947), revg. 7 T.C. 435 (1946). In that
case, the Court of Appeals for the District of Columbia held that
a taxpayer which (1) was required by Illinois law to receive
income, (2) would have been subject to monetary penalties if it
had not received the income, (3) protested the payment, and (4)
immediately commenced and later prevailed in a court challenge to
the constitutionality of the statute under which the payment was
received did not have income in the year of receipt. Id. at 593.
Petitioner’s situation is distinguishable from that of the
taxpayer in Sohio Corp. v. Commissioner, supra. The taxpayer in
Sohio Corp. did not receive and retain the payment voluntarily,
but rather did so under the compulsion of State law and the
threat of heavy penalties. Id. at 593. In contrast, petitioner
agreed to be bound by the shareholders’ agreement that contained
the buyout provision and arbitration procedures. The receipt,
retention, and deposit of funds in petitioner’s bank account were
voluntary.
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