North American Oil Consolidated v. Burnet

Holding

Income received under a claim of right without restriction on disposition is taxable in the year received, even if the taxpayer's right to retain it remains the subject of pending litigation.

Facts

The government claimed title to oil-producing land operated by North American Oil. In 1917, a district-court receiver delivered to the company the 1916 net profits of the property. The government later lost the title suit on appeal; the company tried to push the income into 1916 (the year of operations) or 1922 (when appeals ended).

Reasoning

Justice Brandeis announced the claim-of-right doctrine: when a taxpayer receives earnings under a claim of right and without restriction on use, the receipt is income in that year notwithstanding contingent obligations to repay. Tax accounting cannot be deferred merely because title may later be disturbed.