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Abstract: 

Clark v. Commissioner is a seminal Board of Tax Appeals case that supports the fundamental principle that for a transaction to be taxable, the taxpayer must have earned income on the transaction. Despite the case falling in line with what seems to be an obvious proposition, Clark has received scrutiny from a number of commentators, most notably, the Internal Revenue Service. The Service has, over the past 80 years, indicated that it disagrees with Clark and will only support its application in a situation analogous to the specific facts of that case. This article sets out to show that the Service’s hair-splitting analysis of the case is unwarranted in the broader context of requiring income for a transaction to be taxable.

Keywords: compensatory payment, Clark v. Commissioner, recovery of capital doctrine, tax treatment of recovery of loss, Cosentino v. Commissioner, McKenny v. United States

Affiliations:  1: Jones Day.