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Pulsifer v. Commissioner - 64 T.C. 245 (1975)


Under the economic-benefit theory, an individual on the cash, receipts, and disbursements method of accounting is currently taxable on the economic and financial benefit derived from the absolute right to income in the form of a fund which has been irrevocably set aside for him in trust and is beyond the reach of the payor's debtors.


Petitioners Stephen W. Pulsifer, Susan M. Pulsifer and Thomas O. Pulsifer (collectively, "Minors"), were minor siblings. The Minors' father, Gordon F. Pulsifer, acquired an Irish Hospital Sweepstakes ticket in his name and the names of the Minors. In 1969, the Pulsifers received notification that they won $48,000, to be shared equally among them. When Mr. Pulsifer attempted to claim the winnings, he was informed that pursuant to Irish law, the Minors' winnings would be held in trust until they reached 21 years of age or until an application on their behalf was made by an appropriate party to the Irish court for release of the funds. The Minors filed their 1969 Federal income tax returns, using a cash receipts and disbursements accounting method; they did not include their portions of the Sweepstakes winnings as income. Respondent Commissioner of Internal Revenue ("Commissioner") determined a deficiency of $ 2,449.41 against each of the Minors for 1969. The Minors sought review of the Commissioner's decision.


Were the Minors' winnings in an Irish sweepstake taxable in the year in which they were won?




The United States Tax Court entered decisions for the Commissioner. The court agreed with the Commissioner that the economic-benefit doctrine applied, thereby dictating recognition of the prize money in 1969. The Minors had had an absolute, nonforfeitable right to their winnings on deposit with the Irish court. The money had been irrevocably set aside for their sole benefit. All that was needed to receive the money was for their legal representative to apply for the funds, which he forthwith did.

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