Ames v. Commissioner - 112 T.C. 304 (1999)

Rule:

Treas. Reg. § 1.451-2(a) contains the following definition of the term "constructive receipt": (a) General Rule. Income although not actually reduced to a taxpayer's possession is constructively received by the taxpayer in the taxable year during which income is credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available so that the taxpayer may draw upon the income at any time, or so that the taxpayer could have drawn upon the income during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of the income's receipt is subject to substantial limitations or restrictions.

Facts:

Aldrich Ames was convicted of conspiracy to commit espionage and to defraud respondent tax agency and was ordered to forfeit all espionage-related assets. The Commissioner of Internal Revenue determined that Ames had tax deficiencies for four years and that Ames owed accuracy-related penalties. Ames sought review and alleged that he constructively received the illegal income in a prior year, that he was not liable for penalties, that the double jeopardy clause, U.S. Const. amend. V, barred the action, and that the work product doctrine did not bar production of respondent's memo.

Issue:

Did Ames constructively receive income from illegal espionage activities during 1985, when it was allegedly promised and/or set aside for him, or when it was received and/or deposited in his bank accounts during the taxable years 1989, 1990, 1991, and 1992 in the amounts of $ 745,000, $ 65,000, $ 91,000, and $ 187,000, respectively?

Answer:

No.

Conclusion:

The court affirmed Commissioner’s determinations. Ames was not entitled to the Commissioner’s memo because the proceeding was related to the criminal proceeding, and Ames did not show a substantial need because double jeopardy did not bar the civil action. Ames did not constructively receive the income earlier than the Commissioner’s determinations because he did not have an unqualified right to the income earlier. Ames was liable for the negligence penalties assessed. The double jeopardy clause was not violated because the Commissioner’s assessments were civil penalties.