                        T.C. Memo. 1996-98



                      UNITED STATES TAX COURT



            RAYMOND ALBERT MOOREFIELD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17379-94.           Filed March 5, 1996.



     Raymond Albert Moorefield, pro se.

     Maria A. Murphy and Michael Salama, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Judge:   Respondent determined a deficiency of

$310,670 in petitioner’s Federal income tax for 1988 and

additions to tax of $77,667 under section 6651(a)(1) and $15,749

under section 6653(a)(1).   The issues for decision are whether

funds received by petitioner in 1988 constituted taxable income

and whether petitioner is liable for the additions to tax
                                - 2 -


determined by respondent.    Unless otherwise indicated, all

section references are to the Internal Revenue Code in effect for

the year in issue.

                         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 several

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 R.E. Vine Development, Inc., et

al. v. Charles W. Wright, et al. (Vine Development--suit No. 1).

The causes of action that were the subject of the suit included

specific performance, breach of contract, interference with

contract, quiet title, and declaratory relief.    On October 5,

1984, a judgment in favor of petitioner in the amount of

$1,613,450.14 was entered.    That judgment was thereafter

appealed.
                                - 3 -


     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 Raymond A.

Moorefield v. Charles W. Wright, et al. (Moorefield v. Wright--

suit No. 2).   On or about December 4, 1985, petitioner filed

another complaint against Wright in the Superior Court entitled

Raymond A. Moorefield v. Charles W. Wright, et al. (Moorefield v.

Wright--suit No. 3).   The causes of action in Moorefield v.

Wright--suit No. 3 included anticipatory breach of contracts and

agreements, breach of trust, breach of trust with fraudulent

intentions, interference with contracts and agreements,

conspiracy, quiet title, specific performance, and declaratory

relief.

     On January 8, 1988, a Settlement Agreement and General

Release was filed in Moorefield v. Wright--suit No. 3 (the

settlement agreement).    The settlement agreement provided for

disposition of the three previously filed lawsuits in which

petitioner was a plaintiff against Wright and a release of all

claims.   The settlement agreement further provided that Wright

would pay to petitioner the sum of $1,100,000.

     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
                                - 4 -


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 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
                                - 5 -


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 the

“sweeping scope” of section 61(a) and its statutory predecessors.

See Commissioner v. Schleier, 515 U.S. ___, 115 S. Ct. 2159, 2163

(1995); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429

(1955).   In Schleier, the Supreme Court stated:    “We have also

emphasized the corollary to section 61(a)’s broad construction,

namely the <default rule of statutory interpretation that

exclusions from income must be narrowly construed.’”

Commissioner v. Schleier, 515 U.S. at ___ (quoting United States

v. Burke, 504 U.S. 229, 248 (1992) (Souter, J., concurring in

judgment)).   Petitioner has not, in this case, identified any

specific ground that entitles him to exclude the funds he

received from taxable income.   Petitioner’s position is based

primarily on the ongoing litigation and secondarily on the

misplaced argument that the payments he received in 1988 were

somehow attributable to an earlier year.

     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

pursuant to a “claim of right” against Wright.     Where, as here, a
                               - 6 -


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 N. Am. Oil Consol. v. Burnet, 286

U.S. 417, 424 (1932); Nordberg v. Commissioner, 79 T.C. 655, 664-

665 (1982), affd. without published opinion 720 F.2d 658 (1st

Cir. 1983); Hope v. Commissioner, 55 T.C. 1020, 1030 (1971),

affd. 471 F.2d 738 (3d Cir. 1973).     The taxpayer cannot postpone

reporting of the income until a final determination is made

concerning his entitlement to the disputed amounts.      Estate of

Etoll v. Commissioner, 79 T.C. 676, 679 (1982).

     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.      Nordberg v. Commissioner,

supra at 665 (quoting Hope v. Commissioner, 55 T.C. at 1030).

Here, petitioner has never, so far as the record reflects,

recognized an obligation to repay the amounts that he received in

1988.   Apparently, he merely wishes to retain the right to claim

that he is entitled to more money from Wright.

     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
                                - 7 -


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., Lucas v.

Earl, 281 U.S. 111 (1930); Doyle v. Commissioner, 147 F.2d 769

(4th Cir. 1945).

     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.

                                             Decision will be entered

                                        for respondent.
