Clark v. Commissioner

40 B.T.A. 333 (1939)

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Nature of the Case

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Facts

Clark (P) was married and living with his wife. P hired tax counsel to prepare the returns. The counsel prepared a joint return. As a result of the return, the IRS assessed P an additional $34,590.27 and then reduced that to $32,820.14. P paid the monies. The deficiency resulted in an error by tax counsel in which he improperly deducted from income the total amount of losses sustained on the sale of capital assets held for a period of more than two years instead of applying the statutory limitation required under 101(b) of the Act of 1932. The error was called to the attention of the attorney, and when things were looked at again, it was determined that P could have in fact saved $19.941.10 if separate returns were filed. The attorney then paid the monies to P. In his final determination of 1934 tax liability, the Commissioner included those monies as income. P’s books were kept on a cash basis. The Commissioner reasoned that the amount paid by the attorney constituted taxes paid for P by a third party and that P was in receipt of income to that extent. The Commissioner cited Old Colony and the Boston cases. P contends that this payment was compensation for damages caused and that there was no income.