## Facts

- North American Oil Consolidated operated oil properties, including a section of oil land for which the United States claimed title and sought to oust the company from possession.
- In 1916, a federal court appointed a receiver to operate that property and to hold its net income pending resolution of the title dispute.
- The receiver collected net profits from 1916 operations totaling $171,979.22 and held them during the litigation.
- In 1917, the district court dismissed the government’s suit, and the receiver paid the accumulated 1916 profits to North American Oil that year.
- The government appealed without supersedeas; the judgment was affirmed in 1920, and further proceedings ended in 1922.
- In auditing North American Oil’s 1917 return, the Commissioner sought to tax the $171,979.22 as 1917 income; the Board of Tax Appeals treated it as taxable to the receiver for 1916, and the court of appeals held it was taxable to the corporation in 1917.

## Issues

1. Whether the 1916 operating profits paid to North American Oil in 1917 were taxable to the corporation in 1916, 1917, or a later year after the litigation ended.
2. Whether the profits were taxable to the receiver under § 13(c) of the Revenue Act of 1916, rather than to the corporation.

## Decision

- The Supreme Court affirmed that the $171,979.22 was taxable to North American Oil as income in 1917.
- The Court held § 13(c) did not require the receiver to report the income “as and for” the corporation because the receiver did not have complete control of the corporation’s entire business and properties.
- The Court rejected deferring taxation until final appellate resolution, concluding that receipt and control under a claim of right in 1917 fixed the year of inclusion.

## Legal Principles

- Funds received under a claim of right and without restriction as to disposition are includible in gross income in the year received, even if the recipient’s right to retain the funds remains contested in pending litigation.
- If the taxpayer is later required to repay the amounts previously included under a claim of right, the repayment is addressed in the later year under applicable deduction or loss rules, not by reopening the earlier year of inclusion.
- Section 13(c) of the Revenue Act of 1916 applies only when a receiver has complete control of the entire properties and business of the corporation; otherwise, the corporation, not the receiver, is the proper taxpayer for the income.

## Conclusion

The Court held that profits earned during a receivership but paid to the corporation after a favorable trial-court decree were taxable to the corporation in the year of receipt because the corporation took the funds under a claim of right and without restriction, notwithstanding unresolved appeals over entitlement.


North American Oil Consol. v. Burnet, 286 U.S. 417 (1932)