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By Erin McManus
Jan. 4 — A $400,000 payment for an agreement to be in a monogamous romantic relationship was income to the recipient even though a state court subsequently ordered the amount returned.
U.S. Tax Court Judge James S. Halpern ruled Jan. 4 that the payment from 72-year old Lewis E. Burns to 54-year old Diane Blagaich was income to Blagaich in 2010, although an Illinois state court ordered the amount returned to Burns' estate in 2013 after finding that Blagaich had fraudulently induced Burns to enter into a written agreement to confirm their commitment to each other.
Halpern said the $400,000 was income to Blagaich under the claim-of-right doctrine, because she acquired the “earnings, lawfully or unlawfully, without the consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition.”
The rescission exception didn't apply to exclude the amount from Blagaich's income, because her right to the amount wasn't rescinded within the year of receipt and returned to Burns, Halpern said.
Halpern also ruled that collateral estoppel didn't bar the Internal Revenue Service from relitigating the state court's finding that an additional $343,819—consisting of a $70,000 Corvette, a $200,000 wire transfer and various checks totaling $73,819—were gifts from Burns to Blagaich.
Denice A. Gierach and Tamara M. Paulun represented Blagaich. Lauren N. May represented the commissioner.
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