DocketNumber: Docket No. 17379-94.
Citation Numbers: 1996 T.C. Memo. 98, 71 T.C.M. 2296, 1996 Tax Ct. Memo LEXIS 93
Filed Date: 3/5/1996
Status: Non-Precedential
Modified Date: 11/20/2020
1996 Tax Ct. Memo LEXIS 93">*93 Decision will be entered for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN,
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioner resided in California at the time that he filed his petition.
On or about April 24, 1969, petitioner entered into a contract with Charles Wright (Wright). The contract granted petitioner an option to purchase a parcel of real property owned by Wright. In 1979, Wright was declared legally incompetent. On or about April 21, 1980, petitioner, as one of several1996 Tax Ct. Memo LEXIS 93">*94 plaintiffs, commenced a lawsuit in the Superior Court of the State of California for the County of Los Angeles (the Superior Court) against Wright entitled
On December 10, 1984, and January 7, 1985, petitioner filed a Complaint for Damages and an Amendment to Complaint, respectively, in the Superior Court entitled
On January 8, 1988, a Settlement Agreement and General Release was filed in
On April 8, 1988, Wright paid petitioner the sum of $ 1,055,000. Approximately $ 750,000 of this amount was paid to petitioner's children pursuant to assignments executed by petitioner in 1985. The additional amount of $ 45,000 was sent to petitioner, but he returned it to Wright's attorney, refusing to accept it. Thereafter, Wright's attorney filed an interpleader action with respect to the $ 45,000 and deposited it with the Clerk of the Superior Court. The interpleader action was subsequently dismissed, and the $ 45,000 was tendered to petitioner.
Subsequent to his receipt of $ 1,055,000, petitioner claimed that Wright and others had breached the 1996 Tax Ct. Memo LEXIS 93">*96 settlement agreement. Petitioner commenced further litigation that continued through the time of trial of this case in January 1996. Petitioner refused to accept the $ 45,000 from the Superior Court because he believed that it would compromise his position that a valid settlement agreement had not been entered into.
Petitioner did not file a tax return for 1988 until December 29, 1993, after he was contacted by the Internal Revenue Service.
OPINION
Petitioner contends that, because his ongoing litigation with Wright has not been resolved, it would be premature to tax him on the proceeds that he actually received in 1988 from Wright. Alternatively, petitioner contends that the proceeds were not pursuant to a settlement agreement entered into in 1988 but were paid on account of a tentative decision of the Superior Court in 1984. Neither theory, however, makes the funds actually received by him in 1988 nontaxable in that year or excuses his failure to file a return and report those proceeds for that year.
Section 61(a) states: "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived". The Supreme Court has repeatedly emphasized the1996 Tax Ct. Memo LEXIS 93">*97 "sweeping scope" of section 61(a) and its statutory predecessors. See
Whether they were paid as a result of the 1984 ruling of the Superior Court or the 1988 settlement agreement, the proceeds received by petitioner were undoubtedly received by him in 1988 pursuant1996 Tax Ct. Memo LEXIS 93">*98 to a "claim of right" against Wright. Where, as here, a taxpayer receives money under a claim of right and without restriction as to its disposition, he has received taxable income in the year of receipt, even if he is under a contingent obligation to return it. See
To avoid the application of the claim of right doctrine, petitioner must at least have recognized in the year of receipt "an existing and fixed obligation to repay the amount received" and made provision for repayment.
Petitioner did return and thereafter refused to accept $ 45,000 of the proceeds that he was entitled to under the settlement agreement. He apparently did so for strategic reasons, however, and not because he recognized an obligation to repay that amount. He simply was trying to protect his litigating position. Because he had control over those funds in 1988, the $ 45,000 must also be included in his income for that year.
Petitioner asserts that the funds that were assigned to his children were to compensate them for the loss of their father during the years in which he was engaged in litigation with Wright. Petitioner's anticipatory assignment of the proceeds to his children, however, cannot avoid tax otherwise due on amounts paid on account of his claim against Wright. See, e.g.,
Petitioner conceded at trial that he did not consult with any tax adviser with respect to his obligation to report the funds that he received in 1988 on a timely filed return for that year. He has not established reasonable cause for his failure to file a return. Similarly, he has not proven that his failure to file the return and report the proceeds as income is not due to negligence. The additions to tax determined by respondent, therefore, must be sustained.
We have considered petitioner's other claims and contentions, and they do not affect our disposition of the issues in this case.
Karl and Hilda Hope, in Nos. 71-1993, 71-1994 v. ... , 471 F.2d 738 ( 1973 )
Doyle v. Commissioner of Internal Revenue , 147 F.2d 769 ( 1945 )
Lucas v. Earl , 50 S. Ct. 241 ( 1930 )
North American Oil Consolidated v. Burnet , 52 S. Ct. 613 ( 1932 )
Commissioner v. Glenshaw Glass Co. , 75 S. Ct. 473 ( 1955 )
United States v. Burke , 112 S. Ct. 1867 ( 1992 )
Commissioner v. Schleier , 115 S. Ct. 2159 ( 1995 )