H. Liebes & Co. v. Commissioner of Internal Revenue
90 F.2d 932 · Court of Appeals for the Ninth Circuit · 1937
Facts
Petitioner received two sets of funds: one from a direct federal judgment against the U.S. for unlawful sealing vessel seizures, and another from a state court judgment confirming its right to proceeds from other federal judgments obtained by a trustee for similar seizures. These funds were received in 1929 but not reported in the fiscal year ending January 31, 1930. The Commissioner assessed a tax deficiency, which the Board of Tax Appeals upheld.
Issue
Did the income from these judgments accrue for tax purposes in the fiscal year ending January 31, 1930, considering the timing of the federal judgments, the expiration of appeal periods, and the contingent nature of the petitioner's right to some of the funds until a state court judgment?
Holding
Yes, the income from both sets of judgments accrued in the fiscal year ending January 31, 1930. The court affirmed the Board of Tax Appeals' decision, finding that the petitioner's right to receive the funds became fixed and unconditional during that fiscal year.
Rule
Income accrues to a taxpayer when there arises a fixed or unconditional right to receive it, coupled with a reasonable expectancy that the right will be converted into money or its equivalent. For judgments, this right becomes fixed upon the expiration of the appeal period, provided no appeal is taken.
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