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third-party payment report”). Petitioners, therefore, have the
burden of showing that respondent’s determination is erroneous.4
Petitioners contend that although they received the funds
reported on the Forms 1099, “some or all of these funds were
given to them to pay to third parties and * * * therefore * * *
[they do] not believe the amounts * * * [are] their income.” We
reject petitioners’ contention.
It is well established that a taxpayer need not treat as
income payments that he did not receive under a claim of right,
that were not his to keep, and that he was required to transmit
to someone else as a mere conduit. Diamond v. Commissioner, 56
T.C. 530, 541 (1971), affd. 492 F.2d 286 (7th Cir. 1974); see
also Ancira v. Commissioner, 119 T.C. 135, 138 (2002); Vetrano v.
Commissioner, T.C. Memo. 2000-128. However, if a taxpayer does
receive a payment under a claim of right and without restriction
or limitation as to the disposition of the payment, then the
taxpayer has received taxable income even if it still may be
claimed that he is not entitled to retain the payment and even
though he may be liable to restore its equivalent. See N. Am.
Oil Consol. v. Burnet, 286 U.S. 417, 424 (1932); Vetrano v.
Commissioner, supra. The record does not reflect that
4In this case, petitioners do not contend that sec. 7491(a),
which shifts the burden of proof to the Commissioner if its
requirements are met, applies, and petitioners have not produced
evidence to show they meet the requirements of sec. 7491(a). The
burden of proof, therefore, remains on petitioners.
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