Misappropriated Money Treated as Income by U.S. Tax Court

Posted on February 14, 2018

If you improperly use money that is entrusted to you, should that money be treated as income to you? The answer is yes, according to a recent case in the United States Tax Court. In the case of Sun v. Commissioner of Internal Revenue, a foreign friend sent about $19 million to Jerry Sun in the United States for investment purposes.

Instead, Sun used almost $6 million to gamble and pay personal expenses. Sun also co-mingled the remaining money with his personal funds, did not separately account for the investment performance of these funds and reported the gains, losses and dividends from these funds on his own tax return. Further, there was no written loan agreement, but there was an obligation to return the money to his friend at some point.

The Tax Court held that because Sun used these funds to enrich himself, he received economic value which, in its classical sense, is income. As a result, the U. S. Tax Court held that the money that Sun misappropriated should be treated as income to him for the year in issue. Do you have unfiled tax returns or unreported income? Contact us, we can help.