United States v. Lewis

Holding

Income received under a claim of right and reported in the year of receipt is not recomputed in that earlier year when later repaid; the taxpayer's remedy is a deduction in the year of repayment, not reopening of the prior year.

Facts

Lewis received an employee bonus in 1944 and included it in income. In 1946 he was required to repay part of the bonus after a state-court determination that it had been overcomputed. He sued for a refund of 1944 taxes attributable to the overpaid portion.

Reasoning

Reaffirming North American Oil v. Burnet, the Court held that income received under a claim of right without restriction is taxable when received. Subsequent repayment does not affect the year of receipt; it gives rise only to a deduction in the year of repayment. The annual accounting principle controls.