Cliff Connors - Page 19

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          is not constructively received if the taxpayer’s control of its             
          receipt is subject to substantial limitations or restrictions.              
          Sec. 1.451-2(a), Income Tax Regs.; see Childs v. Commissioner,              
          103 T.C. 634, 654 (1994), affd. 89 F.3d 856 (11th Cir. 1996).               
               Generally, receipt of payment by an agent is constructive              
          receipt by the principal.  Md. Cas. Co. v. United States, 251               
          U.S. 342, 346-347 (1920); Joyce v. Commissioner, 42 T.C. 628, 639           
          (1964); see also Burkes v. Commissioner, T.C. Memo. 1998-61.  In            
          Gale v. Commissioner, T.C. Memo. 2002-54, funds from a lawsuit              
          against United Ready Mixed were paid at the taxpayer’s direction,           
          under the terms of a settlement agreement signed by the taxpayer,           
          to the taxpayer’s attorney, to be deposited into an attorney-               
          client trust account.  The funds were placed into the trust                 
          account pending resolution of a dispute about attorney’s fees.              
          However, the Court stated in Gale:                                          
               There is no need to consider the doctrine of                           
               constructive receipt because petitioner did not delay                  
               United Ready Mixed's payment.12  As between petitioner                 
               and United Ready Mixed, the settlement amount was fully                
               paid in 1992.  United Ready Mixed retained no interest                 
               in the funds after they were paid, at petitioner's                     
               direction pursuant to the terms of the settlement                      
               agreement, to petitioner's attorney.  Any restriction                  
               placed on the use of the settlement proceeds after                     
               payment by United Ready Mixed, whether the restriction                 
               was placed on the funds voluntarily by petitioner or                   
               through acts by petitioner's creditors, does not delay                 
               petitioner's receipt of the income for income tax                      
               purposes.  [Gale v. Commissioner, supra; citations                     
               12 “Constructive receipt” as defined in sec.                           
               1.451-2(a), Income Tax Regs., is a legal term of art                   

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