## Facts

- Joseph Frank (cash-basis taxpayer) resigned in July 1946 as an officer/employee and shareholder of Interstate Folding Box Company.
- After negotiations, in December 1946 Frank and Interstate agreed to a $50,641.30 global settlement of Frank’s bonus, stock purchase, and related claims.
- Interstate issued two checks dated December 28, 1946: one for stock purchase proceeds and one for Frank’s fiscal-year bonus net of withholding.
- Interstate issued a third check dated January 3, 1947 for $10,557.78, reflecting payment of remaining claims of $13,034.29 net of withholding.
- Interstate had sufficient funds to pay the full settlement in December 1946 and had no business reason to delay the third check.
- The third check was delayed until January 1947 at the request of Frank’s counsel to shift income into the 1947 tax year.
- Frank reported the first two checks in 1946 and reported the January 3, 1947 payment in 1947; he also claimed a $10,000 exclusion under § 22(b)(5) (1939 Code).
- The Commissioner determined a 1946 deficiency, asserting the $13,034.29 was constructively received in 1946 and the $10,000 exclusion was improper.

## Issues

1. Whether the $13,034.29 underlying the January 3, 1947 check was constructively received in 1946 and therefore taxable in 1946.
2. Whether Frank could exclude $10,000 of the settlement under § 22(b)(5) as a non-taxable amount.

## Decision

- The Tax Court sustained the deficiency (subject to recomputation).
- The court held the $13,034.29 was constructively received in 1946 because it was fixed and available to Frank in 1946 without substantial restriction, and payment was deferred solely at Frank’s request.
- The court held the $10,000 exclusion under § 22(b)(5) was not allowable because the settlement payments were compensation/stock-related amounts, not qualifying personal-injury-type damages.

## Legal Principles

- A cash-basis taxpayer constructively receives income when it is credited, set apart, or otherwise made available so it is unqualifiedly subject to the taxpayer’s demand, and the taxpayer’s control is not subject to substantial limitations or restrictions.
- A taxpayer cannot avoid current-year taxation by arranging to postpone actual receipt of income that is otherwise fully available.
- Settlement proceeds are taxable according to their substance; absent credible supporting facts, claimed allocations to excludible categories (such as personal-injury-type recoveries) are not respected.

## Conclusion

Because the settlement amount was fixed and payable in 1946 and the only reason for delaying the final payment was the taxpayer’s tax-motivated request, the unpaid balance was constructively received in 1946; the court also rejected the claimed $10,000 exclusion as unsupported by the nature of the settlement.


Frank v. Commissioner, 22 T.C. 945 (1954)