Bright v. United States

926 F.2d 383 (1991)

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Bright v. United States

United States Court of Appeals for the Fifth Circuit
926 F.2d 383 (1991)

JC

Facts

Neal Bright (plaintiff) was the executor of the estate of Elizabeth Cornell. Cornell was the beneficiary of the Elizabeth R. Cornell Trust (trust), which was created in 1970 for her benefit. In 1985, the trust owned over 188,000 shares of Southland Royalty Company stock. When Southland Royalty agreed to merge with a pair of other entities, Cornell was to receive payment from one of them, M-R Holdings, Inc. (Holdings). On December 27, 1985, one of Cornell’s employees received a check for $3.2 million from Holdings. The check included no restrictions on the check’s negotiability. The employee endorsed and mailed the check for deposit in the trust account. The bank posted the check to the trust account on December 30. On that same date, the employee also placed an order to buy government securities with the $3.2 million from the Holdings check. At that point, the bank advised that it would restrict the availability of funds until it had collected the funds from Holdings’ payor bank. Accordingly, the bank did not purchase the securities until January 3, 1986. Accordingly, Cornell contended that because she did not have use of the funds until 1986, Cornell did not receive the funds from the sale of the stock until then. The government (defendant) disagreed, noting that both Cornell and the trust were cash-basis taxpayers. The government argued that the income was includable in 1985. Cornell had first classified the income that way but later amended her return to claim it as 1986 income and sought a refund from her 1985 return. After Cornell’s death, her estate filed suit, seeking to claim the income as 1986 income. At the trial-court level, however, the government’s motion for summary judgment was granted on the basis that the check—without any negotiability restrictions—was a cash equivalent received in 1985 or that the income was constructively received in that year. Although prior caselaw had established that restrictions on the use of a check could cause delay in its constructive receipt, cases had also indicated that even a December 30 check receipt would be construed as a cash payment in that year, even if the check was not ultimately paid out until January. Bright appealed the trial court’s ruling.

Rule of Law

Issue

Holding and Reasoning (Per curiam)

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