Diamond v. Commissioner - 492 F.2d 286 (7th Cir. 1974)

Rule:

The receipt of a profit-share with determinable market value is income.

Facts:

Appellee Commissioner of Internal Revenue assessed unrelated deficiencies against appellant, having determined that appellant realized ordinary income on the receipt of a right to a share of profit or loss to be derived from a real estate venture, in exchange for his services, and that commissions he paid to bank officers on his commissions as a mortgage broker were not deductible business expenses. The tax court affirmed appellee's assessments. Appellant sought review of the decision. 

Issue:

Did the appellant realize ordinary income on the receipt of a right to a share of profit or loss to be derived from a real estate venture, in exchange for his services? 

Answer:

Yes.

Conclusion:

On appeal, the court affirmed, holding that the receipt of a profit-share with a determinable market value was income. Only if by strained construction "property" were said to include services would I.R.C.§ 721 say anything about effect of furnishing services. With respect to commissions, the tax court's findings were not clearly erroneous that appellant failed to prove that he received this money as a conduit and not under claim of right, nor that appellant failed to prove that this type of payment to the lender's officers was ordinary and necessary.