Brief Fact Summary. Taxpayer had a right to 5% of net profits of a corporation for which he was a Director and President. After receiving a large sum for the first half of a year, he refused any remaining compensation for that year.
Synopsis of Rule of Law. A taxpayer may realize income when he is able to direct its disposition even though he never received it directly.
Issue. Should the money be counted as income of Taxpayer despite his attempt to divest himself of any rights to it?
Held. Circuit Judge Stephens issued the opinion for the United States Ninth Circuit Court of Appeals in affirming the Board of Tax Appeals and holding that the money was not “beneficially received by the taxpayer” and should not count as income.
Concurrence. Circuit Judge Healy issued a concurrence but it is omitted from the text.
Discussion. The Court of Appeals found that the Taxpayer did not receive the money and he did not direct how it was to be used. He only wanted the corporation to keep it and use it as they saw fit. There was no evidence that Taxpayer was attempting to commit fraud or trying to avoid tax consequences.