BAILEY v. COMMISSIONER OF INTERNAL REVENUE
T.C. Memo. 2012-96
United States Tax Court.
Filed April 2, 2012.
1. Income items
a. Barnett Bank interest
Mr. Bailey acknowledges that he received interest income of $207 in 1993 from Barnett Bank of Palm Beach County that was not reported on his 1993 Federal income tax return.
b. Gross receipts
The IRS determined that Mr. Bailey had additional gross receipts under section 61(a)(2) in the amount of $86,808 in 1994, consisting of amounts (not related to Claude Duboc) that were deposited into Mr. Bailey's Credit Suisse account. However, Mr. Bailey contends that the fees so paid were retainers not yet earned. Mr. Bailey says that he treated the Credit Suisse account as if it were a sort of trust account for certain clients (in a manner similar to the arrangement he made with the Government for Duboc stock) and that when he had earned the fees, he transferred them to his Barnett account, which (he says) would have resulted in their being reported as income at that time, given the method he used for reporting income. His contention is not implausible, but he does not point to any entry in the record showing any later-reported income items as including these amounts, and the Court is not able to find any such entries. The IRS's adjustment in this respect is therefore sustained.
c. Capital gain
The IRS determined that in 1994 Mr. Bailey had additional long-term capital gain income from the sale of 150,000 shares of Biochem Pharma stock on October 20, 1994. However, we have held that the deposit of stock sale proceeds into Mr. Bailey's Credit Suisse advance account did not constitute an appropriation of those proceeds by him. Rather, Mr. Bailey realized ordinary income upon his receipt of proceeds from the sale of the shares when the money was transferred to his Barnett account in 1994 and 1995. The IRS's capital gain adjustment is therefore not sustained.