Claim of right doctrine



In the
tax law Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the case of the US) use a body of rules and procedures (laws) to assess and collect tax ...
of the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
the claim of right doctrine causes a taxpayer to recognize income if they receive the income even though they do not have a fixed right to the income. For the income to qualify as being received there must be a receipt of cash or property that ordinarily constitutes income rather than loans or gifts or deposits that are returnable, the taxpayer needs unlimited control on the use or disposition of the funds, and the taxpayer must hold and treat the income as its own. This law is largely created by the courts, but some aspects have been codified into the
Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...


The claim of right doctrine, as it dictates whether the "right" to the income subject to a contingency that may take the income away is taxable in the US, originated in the '' North American Oil Consolidated v. Burnet'' decision. This court decision said that a taxpayer's income subject to a contingency that may take away the income but a taxpayer who receives it "without restriction as to its disposition...has received income" which the taxpayer "is required to eport, even though the taxpayer "may still be adjudged liable to restore" it. In other words, A taxpayer must report the receipt of income for the time that she or he has control over it. If a taxpayer ends up having to return the income recognized under the claim of right doctrine, then the taxpayer may receive a tax credit for that amount according to the Internal Revenue Code, if such a credit is a greater tax benefit than a deduction. The courts limited the claim of right doctrine and will not allow the
IRS The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory ...
to make the taxpayer recognize income if there are significant restrictions on the taxpayer's disposition of the income.Smarthealth case

See also

Tax accounting U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from ...
* Cash Method v. Accrual Method


Further reading

*{{cite journal , last=Bingler , first=John H. , year=1967 , title=The Inequitable Application of the Claim of Right Doctrine in Tax Administration , journal=Tax Executive , volume=20 , pages=82 , issn=0040-0025 Taxation in the United States United States tax law