Ames v. Commissioner

112 T.C. 304 (1999)

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Nature of the Case

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Facts

P was a CIA employee who decided to spy for the Soviet Union. P sold classified information to the KGB (the Soviet intelligence directorate) in return for large amounts of remuneration. In the fall of 1985, P received a communication from a Soviet agent that $2 million had been set aside for him in an account that he would be able to draw upon. Petitioner was told that the money was being held by the Soviet Union, rather than in an independent or third-party bank or institution, on P's behalf. P received $50,000 in cash for his initial disclosure to the KGB and additional cash payments. In 1989, the KGB provided him with two written documents. The first was a financial accounting that indicated that as of May 1, 1989, approximately $1.8 million had been set aside for petitioner and that some $900,000 more had been designated for him. The second document also contained a discussion of arrangements for cash drop-off payments to P. P was arrested in 1994. During the years 1989, 1990, 1991, and 1992, P and his wife made deposits of cash from his unlawful espionage activities in the amounts of $745,000, $ 65,000, $ 91,000, and $ 187,000, respectively. P did not report this income on his tax returns for those years. P was indicted on charges of conspiracy to commit espionage, under 18 U.S.C. sec. 794(c), and conspiracy to defraud the U.S. Internal Revenue Service, under 18 U.S.C. sec. 371. P pled guilty to both counts of the indictment. The indictment contained a criminal forfeiture count pursuant to 18 U.S.C. sec. 794(d). P was sentenced to life imprisonment on the espionage charge and 27 months' imprisonment on the tax charge, the two sentences to run concurrently. P did not report any income that had been set aside for him. P contends that he constructively received most 6 of the unlawful espionage income in 1985, and, accordingly, he was not required to report the income received and deposited during the taxable years 1989, 1990, 1991, and 1992. D contends that the income was reportable in 1989 through 1992, the years petitioner actually received and deposited cash in his bank accounts. P petitioned.