Ramiro and Maria Martinez - Page 8

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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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