This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: top 2025 tax cases, part one.

This week we're hosting the 2025 edition of the top tax cases series. Damien Martin and Tony Nitti, both tax partners at EY, will be highlighting their top tax cases from the year.

The episodes in this two-part series are a bit longer than usual, but we promise they're worth it. Keep an eye out on your feed for part two coming next week. And if you prefer to watch your podcasts, you can head over to our YouTube channel to see us on video. For now, let's hand it over to Damien and Tony.

Damien Martin: We're excited to be here again for our second year — right, Tony? — doing the top tax cases [of] this year, 2025. I know, Tony, before we get in — I mean, I know we've been going back and forth, seeing what makes the list; we should probably talk a little bit about what makes the list again, just for any new listeners here. But I'm curious what your observations are, generally speaking, on the year.

Tony Nitti: Yeah. Well, first things first, always my favorite day of the year to do this with you. We've been doing it for a while. I don't think we have an accurate count, but we'll try to get that for next year because we have to be coming up on a decade, Damien, that we've been doing this.

Damien Martin: Darn close. Yeah.

Tony Nitti: And the rules haven't changed. The rules are there's no quorum, there's no panel — you and I sort through cases and pick out the ones that interest us. And what we're really looking for, obviously, first and foremost, are cases where listeners can learn something, and ideally learn something that they can apply in their practice on a somewhat regular basis.

As much fun as it is to talk big-picture issues, like, for example, the [Moore v. United States] Supreme Court case, it's not something you're necessarily going to apply in your practice, which I think is one of the reasons we didn't do Moore even though it was a Supreme Court case last year. So we're looking for something with relevance and, yeah, we want them to be informative and educational.

And if they can be, we're looking for a little entertainment value here, as well. And so sometimes that catches our eye, and then we realize that the substance of the case is every bit as good as its entertainment value, and it works out just great for us.

But yeah, we don't get into due process cases and penalty provisions; we're just trying to focus on core elements of the modern income tax law. We tend not to trend into a state and gift or international. You and I, we tend to focus where we focus our practices: on domestic income tax issues. And this year is no different.

We had a challenge this year — I mean, we had the [Tax Court] close down for 40-some-odd days. And so it was slim pickings, in a sense. But the truth is, dude, every year, you and I, we hem and haw and we say, "Oh, it's kind of a challenging year to find some good cases." And at the end of the day, we end up loving the cases that we pick. And I think that's going to come through here because the six cases we have to talk about, I think any year they would stand out as six really fun cases to discuss.

Damien Martin: There's probably one case that's not on our list that it is probably, gets a mention, but we also kind of, I don't want to say beat it up, but we talked about it a bunch last year indirectly. So the case this year, it would be the [Denham Capital Management LP v. Commissioner] case, and I guess [Soroban Capital Partners LP v. Commissioner] II. This is like case zero. So we've got to get to the first case, right?

Tony Nitti: Fair enough.

Damien Martin: So again, our first bucket: What's income? Simple question and a hard answer. First case we have, it's CF Headquarters Corp. vs. Commissioner. So it's 164 T.C. 5. We got it back in March.

I'll ask my basic question here, Tony: Why is this on here, what did this case deal with, and what's the lesson that we can take as tax practitioners?

Tony Nitti: Yeah. So this is on here because, like you mentioned, it speaks to the absolute core of not only what we do, but how is the modern income tax designed — what is income? And so you had mentioned earlier today how many different cases we end up touching.

What I find unique about this year is how many different Supreme Court cases — the seminal cases that really frame our tax law — how many of them are going to make appearances in our conversation today. So I don't know how many people that listen to this podcast are on the younger side of their career, their formative stages, but boy, will this be a useful one for people that are just getting going to see how this all fits together.

And so, yeah, I mean, Cantor Fitzgerald, we are going to get to the heart of what is income by looking at the default presumption that the code operates under, and then, are there ways to overcome that by finding specific exclusions? So let's not get ahead of ourselves: We'll get into the facts, we'll lay them all out. If I get anything wrong, you'll correct me.

Damien Martin: That's what I'm here for.

Tony Nitti: Yeah. So Cantor Fitzgerald, it's a family of businesses, most people are familiar with the name. For our purposes, it's important that we understand that the entity we're looking at is a corporation — a C corporation. It's going to become very relevant to our facts. But Cantor Fitzgerald, it's a financial services firm; it buys and sells securities and commodities. And everything I've learned about that industry is from the movie Trading Places. So commodities include things, Damien, like gold, silver, pork bellies, and, of course, frozen orange juice.

But Cantor Fitzgerald was headquartered between the 101st and 105th floors of the north tower of the World Trade Center in 2001. And in a lot of ways Cantor Fitzgerald served as the symbol of the scale, I think, of the loss on that day because they had a thousand employees, and over 650 of them died in those attacks. And so absolutely tragic.

And then, post-9/11, their future was uncertain. Were they going to stay in Lower Manhattan? Weren't they? And then that was the same for a lot of businesses that had been located in New York City at the time of those 9/11 attacks. And so New York state didn't want to see businesses flee, obviously.

And so they came up with a grant program — several grant programs, actually — that were largely funded by federal dollars, but to provide incentives for businesses to stay put, like Cantor Fitzgerald. So if you could create and retain jobs in Lower Manhattan, you would be eligible for grant dollars.

And specifically here with this particular grant program, they were going to require Cantor Fitzgerald to create or retain about 650 jobs over a seven-year period. And if they did that, they could submit a request for grant dollars that could be used to reimburse the corporation in five categories. And this is important, as well: Those categories [were] salaries, payroll taxes, employee benefits, rent, and then the fifth, which was added a little bit later in the game, was capital improvements, machinery, equipment, things that you would need, leasehold improvements.

And so Cantor Fitzgerald certainly was happy to potentially benefit from this grant program. But there was something in it for the state, obviously, as well, and the city: The goal is economic revitalization. And they actually crunched some numbers, D, and they saw that, if we lose Cantor Fitzgerald, that alone is a $10 million annual hit to our tax revenue. So this grant program — and you can imagine why I'm explaining this part, because it will become relevant later — this grant program, there's something in it for the city, as well.

And so Cantor Fitzgerald holds up their end of the bargain, and in 2007 they submit a request to receive these grant proceeds of $3.1 million, specifically to reimburse them for rent expenses. And the facts, that's pretty much it. So they get their $3.1 million, and they don't believe it's taxable income. Now, the reasons for not believing it are where things get really fun in this case.

And we start with this overarching argument that they made that the court made quick work of, and we'll see why — and I think it's important, like I said, for young listeners to understand why that argument was never going to be successful. But then they made much more granular arguments of, here's why we don't think it's taxable income, by pointing to specific exclusion provisions in the code.

But let's start with this overarching concept: They went in, Cantor Fitzgerald, and said, "We don't believe these grant dollars are taxable income because there was nothing in the grant literature that explicitly stated that this is taxable income."

And not to belabor the point, but for anybody listening, that is not how our federal income tax operates. The 16th Amendment, the language there, the language codified in section 61, it operates under the exact opposite presumption. We don't live in a world where things aren't taxable income unless something explicitly states it is; we operate in a tax law where everything that is income is taxable income unless something specifically states that it is not. That's how the 16th Amendment works.

Like I said, section 61 is meant to express Congress's broad taxing power and say taxable income includes income from all sources or wherever derived. And so it is exceedingly broad. And so I like drilling in on that, D, because that is the foundational point of our tax law: Everything is taxable income unless something specifically says it isn't. And as we'll learn later, nothing is deductible unless something specifically says it is.

Damien Martin: It is, yeah.

Tony Nitti: And so that argument was never going to go very far from Cantor Fitzgerald, this notion that because the grant document didn't say this is taxable income, it's not taxable income. Again, that is not how our tax law operates. But they were prepared for more.

And what I love about this case is, how often do we get a chance to see a taxpayer who's trying to pull something out of income post three alternative arguments for why it isn't income? We get to learn about three different potential exclusion provisions all in one case.

And so Cantor Fitzgerald laid them out and they said, "OK, number one, we think that these grant dollars represented what we call nontaxable nonshareholder contributions to capital under section 118. Failing that, you don't like that argument, then we think these grant dollars represent nontaxable gifts under section 102. And then, if that one doesn't convince you, either, we think these are qualified disaster payments under section 139."

So, D, we got arguments made under 118, 102, 139. Not a trick question, numerically speaking: What do those three code sections have in common?

Damien Martin: Well, it sounds like, stating the obvious here, but they all start with the number one — they're all in the hundreds.

Tony Nitti: They are.

Damien Martin: Low hundreds. Yeah.

Tony Nitti: Exactly what I was looking for. As simple as it sounds, the challenge a lot of people have when they first start wielding the tax law is they look at the volumes of code and they say, "How am I supposed to find my answer in there?"

And what I like to do when I'm teaching is try to shrink the tax law a little bit, make it a little bit more manageable. And as you said, the three sections we're looking at here to potentially exclude income — 118, 102, 139 — they're all in the low 100s. And the way I explain it to my students is, when you're in the low 100s of the code, those are the good news provisions of the code. That's where good stuff is happening, because 101 to 140 are your specific exclusions from taxable income.

And so if you're starting off on a research project thinking, is there a way to exclude — not defer, deferrals will have their own provision — but flat-out exclude my income, probably makes sense for me to start between 101 and 140. And we get to look at three of those exclusion provisions here today.

So 118, we'll start there because that's where they started — admittedly not a section of the code that we deal with that often. But interestingly, the Supreme Court has already spoken to it. We'll get there in just a minute, but first, let's describe what 118 does, why it exists.

But you and I, D, we could decide to form a corporation today together, and you might put in appreciated property and I might just throw in a bucket of cash. And from a tax perspective, we tend to always focus our attention on the shareholder side of things. Damien put in appreciated property, does he have to recognize that appreciation upon transfer? And we have a section of the code, 351, that's going to protect Damien as long as he and I control 80 percent of the corporation immediately after. But we never really stop and think about the corporation side of things.

The corporation, you've got this cash that I put in, this property Damien put in, and we're going to get more into [Commissioner v. Glenshaw Glass Co.] — a very important Supreme Court case — later. But Glenshaw Glass gives us this modern definition of income, and we'll get into the three prongs when it's time.

But the first is any accession of wealth. If you have an accession of wealth, we're going to start with the presumption that's taxable income. Well, here, the corporation, it's got cash from me, it's got property from you, it's got more wealth than it did yesterday.

So should the corporation have to recognize taxable income every time people put some value into it? That would obviously not be a particularly effective way to incentivize people to invest into a business. And so we have protection here in the form of section 118, which is just handling the corporate side of things and saying the corporation doesn't have to recognize income when it receives a shareholder contribution to its capital.

Now what's unique here, though, buddy, is the party making the payment is New York state, it's not a shareholder. And interestingly, 118 accommodates that. You can have a nontaxable nonshareholder contribution to the capital of a corporation. And it's always confused me. When do you typically see that? Why would someone want to put something into a corporation and take nothing back in return? You get it sometimes when maybe an individual wants to contribute land to a corporation that's going to perhaps create utilities on that land that will service the entire area. Government bodies will put in land, for example, of a corporation so property can be developed that'll serve the greater good.

And so you have this ability for a nonshareholder to contribute something to the capital of a corporation and still have it not be taxable to the corporation. Now, that law changed with the Tax Cuts and Jobs Act, and it's one of those things where I had to remind myself this happened when we were going through this case. But it removed the ability post-2017 for a governmental entity to make a nonshareholder contribution to capital. But we're going back to 2007, so it doesn't apply to our fact pattern. But yeah, 118 was modified by the Tax Cuts and Jobs Act.

But you get the idea here is there are certain situations where someone who's not going to take back any stock in the corporation still believes it makes sense to make a contribution to that corporation. And 118 will protect the corporation from income the same way it would from a shareholder. Post-2017, that protection won't be there for a government entity, but we don't have to worry about that in our particular fact pattern.

And so they're just arguing here, Cantor Fitzgerald, that this grant is a nonshareholder contribution to capital. And I would be lying to you if I said I was aware that the Supreme Court had spoken to nonshareholder contributions to capital. More importantly, that they had done so all the way back in 1925, I would not have known that that had happened.

But that's exactly what happened in a case called [Chicago, Burlington & Quincy Railroad Co. v. Chicago], which we'll just shorten to CBQ for our purposes. And what CBQ did is it said we need some factors to help us differentiate what is a nontaxable nonshareholder contribution to capital and what should be taxable. Just like we had this functional test under Soroban we talked about, we need a way to look at this, we need a way to measure this.

And so what the Supreme Court said in that case is there are certain characteristics that we look for in a nontaxable nonshareholder contribution to capital. One of them would be, for example, that the party putting in the property wasn't looking for a return in the form of goods or services.

So yeah, if you and I contributed land to a corporation with the goal that they provided some type of utilities on that land right back to us, that might be a hard sell for the corporation to argue that it's a nonshareholder contribution to capital that's nontaxable because there's anticipation of goods and services coming right back to us.

But the factor that's most relevant in this particular case is the notion that nonshareholder contributions to capital are intended to become part of the corporation's permanent working capital structure. So it is supposed to be something like land, or something that it's not going to come into the corporation then immediately go out in some other form. And that is where they really focus their attention here.

And what's even more interesting than learning that the Supreme Court had spoken to this is the fact that we had a very similar 9/11 grant case out of New Jersey in 2020 in the Third Circuit called [Commissioner v. BrokerTec Holdings Inc]. And in BrokerTec, the court already looked at this issue and applied these CBQ factors. And in that particular case, the company had received a New Jersey grant as a relocation inducement, and the court said, "Look, this is a taxable contribution to capital because it's just replacing deductible expenses for you, these rent expenses, these relocation expenses. It's not becoming a permanent part of your working capital."

And the easiest way to conceptualize that in the case of Cantor Fitzgerald is that when they submitted their request for this grant, it was $3.1 million to compensate them for rent expense. And so that's not becoming part of their working capital. The money that came in is replacing items that not only went out the door, but were deductible when they went out the door.

And so that was ultimately what the court fixated on here where they said, "What you're getting here from the state is not becoming a permanent part of your working capital that's going to help this business expand, whatever it may be. It is purely a reimbursement of otherwise deductible rent expenses. And so if we allowed this to be a nontaxable contribution to capital from a nonshareholder, you'd get a double benefit: You would get tax-free dollars used to pay tax-deductible rent expense." And so we don't encounter 118 all that often, but apparently the courts have considered it more than I realized.

But you understand where they're coming from here. Something like this that is simply going in and out of the corporate coffers to pay deductible expenses, that's not what 118 was designed to protect in this nonshareholder type of setting. The factors laid out in CBQ wanted it to become part of the permanent working capital of the company. And so they tried to make an argument that some of the expenses they were reimbursed for, they did use to make fixed asset additions. But the bottom line is they were beholden to the formalities where the expenses they requested were for rent expense — a deductible expense. So 118 did not work out for them, Damien.

Damien Martin: Rent, yeah. Yeah. And I think it's interesting because, well, two points I'll make. I'll say, I think it was one thing that I picked up from you. It's like, you go through these cases and you think, why are you telling me this? Why is this in the case? Tony, why did you just bother to say what the specific uses of the funds were? Well, it turns on it.

And then secondarily, it's that these are things that you have to evaluate. It could look like something else. They're very, very similar. And they turn on these very specific things in part of the provision. So I guess that's what makes it interesting and why we come back every year and have interesting things to say about the tax law. All right, so that was 118. They also talked about 102, section 102. So what have we got going on there?

Tony Nitti: Well, if you're sitting there right now and you're saying, "Well, Tony, Damien, how often am I going to have to differentiate between taxable income and 118?" Not very often. But taxable income and a gift, very often.

Damien Martin: All the time.

Tony Nitti: And this is a question as old as the tax law itself: How do I know if something is income or if it's a gift that somebody just wanted me to have? And there are so many things that you could try to massage the tax law to suit your needs. For example, an employer could say, "Oh, this money I'm giving to Damien, this isn't part of his salary, this is a gift." And so we need guardrails around gifts.

And those guardrails, yeah, they're laid out in the statute in 102, but they're largely defined by — I mean, has to be, D, one of the five most important Supreme Court cases in the modern tax law, which is [Commissioner v. Duberstein]. And Duberstein is one of those cases where you come out of the grad tax program or an LLM or whatever it may be, and I think there are words there from the case that you can recite from memory the rest of your career because they get beaten into your brain.

But in defining a gift, they say that it must come from a "detached and disinterested generosity" of respect, admiration, affection, or like impulses. In other words, it's like, "Man, I'm giving it to you, Damien, purely because you're the best. That's it. That's all. Nothing I expect in return."

And in that particular case, it had two parts to it, but in the first, simple fact pattern — and I'm talking not Cantor Fitzgerald, but Duberstein, just so we understand how they came up with that definition — you had this guy, if I'm remembering, I think the company's name was Mohawk Metal, if my memory is right.

Damien Martin: Sounds right, yeah.

Tony Nitti: A cool name for a company in the tax law. But this guy owned Mohawk Metal, and this fellow, Duberstein was consistently referring work over to him. And so one day he just said, "Here's your new Cadillac." And from Duberstein's perspective, that was a gift. He didn't ask for it; he was just bestowed a Cadillac.

And the Supreme Court came in and they looked at it and said, "No, we think a gift has to come from a detached and disinterested generosity purely out of the kindness of your heart. Here, we know what's going on." Mohawk Metal was getting these referrals, and the party who made the gift, they wanted to keep those referrals coming. They wanted to make sure that they stayed on your good side so that you would keep kicking work over to them. That is not a detached and disinterested generosity.

And so it really does make us look at gifts through the lens of the donor. Do they expect anything in return? And that's why 102(c) makes it almost impossible for an employer to ever give a gift to an employee other than what's allowable to the de minimis amount because of course you expect something in return, whether it was past services, present services, future services. So it makes it difficult.

In the case of Cantor Fitzgerald here, going back to what you said earlier, everything we lay out in the facts, we try to do it because it's going to come back around. What did we say? New York, yes, there was an element of charity in this grant program, but the clearly stated motivation behind the grant program was what? Economic revitalization. They crunched the numbers. They knew what losing Cantor Fitzgerald would mean for them from a tax revenue perspective. They did not want that.

And so the court made fairly quick work of it here, just saying, "How under the Duberstein definition can we say that this grant was made out of a detached and disinterested generosity when the state is clearly getting something in return?" And what they're getting is the continued existence of a company as large as Cantor Fitzgerald within its state and city limits.

And so a fundamental piece of our case law — is something taxable? Is it a gift? It all comes back to that: What do we expect in return? And when you're saying in order to get this grant, Cantor Fitzgerald, you need to create and retain 650-some-odd employees over a seven-year period, we're looking for something in return there. We want you staying home. We want you creating tax revenue in our city. And so, yeah, so 102 didn't work out for them, either, Damien.

Damien Martin: OK. So 118, 102 didn't work out. You mentioned, and then I know they talked about section 139. What's 139? I mean, help me out, where did that come from?

Tony Nitti: Man, 2019, I wouldn't have been able to answer your question. Yeah. But then the pandemic changed things for us.

139 was born — I'm 99 percent sure it was born out of 9/11. The scope of that tragedy, the scale of that tragedy was so big that Congress wanted a way for government bodies and employers to be able to make payments to individuals related to qualified disasters to cover expenses that were born out of that disaster, whether it was increased medical bills or funeral expenses or things like that.

And I didn't know it even really resided in the Internal Revenue Code until the pandemic hit. And then, when the pandemic hit in 2020, I remember doing a little bit of writing about it, because I'm like, "Wait a minute, this is in play now."

This is an opportunity for, like I said, for employers who can't make a gift to employees tax-free under 1029(c), because of that quid pro quo relationship, but it now would allow employers to pay certain living expenses, if you will, of an employee that were increased or created because of the pandemic, which was a qualified disaster. And so [it's a] really, really fascinating provision that, like I said, you hope you never have to use because —

Damien Martin: There's a disaster, to your point. Yeah, yeah, yeah.

Tony Nitti: Exactly. But this is one of those where — sometimes when you and I look at a case, we're like, "These are smart people doing this, not quite sure how this made it into the case." 139 is very clear on its face, D, it allows a government or an employer to make payments to a individual.

And what's the first thing we said about Cantor Fitzgerald as it relates to this case? The entity we're talking about, not an individual, it's a corporate entity. That's why we're talking about section 118. And so this was — quick work was made of 139 because the statute says what it says. It allows you to provide benefits to an individual. Here, we're talking about a corporation.

So unfortunately for Cantor Fitzgerald, they went zero for three in their cases. But in doing so, we get to learn a little bit here about the general way in which the tax law operates, and then get a look at three pretty darn interesting exclusion provisions and get an idea of how the courts would differentiate things that fit within those provisions from things that don't need to be taxable income.

Damien Martin: Yeah, no, and I think it's really helpful to see how it shows up in some of these provisions. Because they all turn, again, on their specific requirements after you made it, like I was saying earlier. But just they're not things that you maybe see every day. I mean, section 102, that does come up quite a bit more, to your point.

But it's mostly because people are thinking, they're trying to accomplish something, or there's a situation they're trying to address. And so that's when they start to naturally go through and say, "Well, gosh, can't I just exclude that from income?" So I think it does a really nice job in laying those out. And also the fact that you got to start from the fact that just it's income unless it isn't. And so I think that's a good takeaway, particularly as we go to our next case.

We'll get to our second case. It is [Ana M. Franklin v. Commissioner]. That is T.C. Memo 2025‑8. Goes all the way back to January, interestingly. But I know they were looking at what's income vs. a loan. What's the distinction there? So do as we do here, Tony: Set us up, what are the facts, and dig into how we make this determination.

Tony Nitti: Will do. And I think what I like about this case is, you and I, we read enough cases where you can't help but be predictive in the facts, "I know how this story ends." This is one that I didn't — I got sucker punched. So it was a kind of an M. Night Shyamalan-worthy twist there where I didn't see that one coming.

OK. So the facts in Franklin, not going to sugarcoat it, fairly unique in a sense, but the ultimate issue, not so unique. So Franklin was a small town sheriff in Alabama. And she was an employee, so very important if we establish that as well, W-2 employee.

And in her role as an employee and as a sheriff, she was responsible for feeding all the prisoners in her county. And the way that worked, D, is she didn't have to come out of pocket — I didn't want to sound like that. Federal and state dollars would go into a bank account that she was ultimately responsible for. And when I say responsible for this bank account, she had signature authority over it, so she had control over it, but it went beyond that.

What I mean is if there wasn't enough money in that account, she had to make up the shortfall. Interestingly, if there was an excess amount in there, because she owned the account, it would actually — could end up in her pocket. You could imagine where that could go wrong, because her predecessor ended up in some hot water because he saw the ability to pocket excess cash.

And he decided to give his prisoners what I have always referred to as the Damien Martin diet, which was three corn dogs a day. You have been religious about your three corn dogs a day for as long as I've known you.

Damien Martin: I have.

Tony Nitti: He was giving them corn dogs as a staple of every meal so that he could pocket the excess cash. So that's not a great look. But frankly, that wasn't her MO; she took this responsibility very seriously. And so she's got this money in the account, and she's doing OK.

But there's just more and more prisoners popping up all the time. She realizes come 2015 that she's starting to watch that account go down every month instead of going up. And so she's doing the math and saying, "I need a way to supplement this account because, ultimately, I'm the one who ends up holding the bag if there's not enough money in here. I've got to come up with the shortfall."

And so she's got her boyfriend who says, "I got just the thing for you. I've got a buddy who owns a used car dealership." And he said, "If we loan them $150,000, in 30 days we'll get our money back and 17 percent interest on top." Now, we're a tax podcast, we're not a financial planning podcast. But if you have the opportunity to invest $150,000 in a used car dealership in Alabama in exchange for a promise of 17 percent return, that's financial planning 101, D. I mean, you got to do it, right?

Damien Martin: Clearly.

Tony Nitti: Maybe for legal reasons we should say you absolutely don't.

Damien Martin: That's right, that's right. Just to be clear, yeah, I think that's not a good idea.

Tony Nitti: Did not end well.

Damien Martin: Well, let's just say, here, how about this: It sounds a little too good to be true, the return in the period of time. How about we'll go there at the very least.

Tony Nitti: Yeah, I don't mean to make fun — or maybe I do, I don't know. It didn't end well. $150,000, she takes it out of the prison food fund account, cuts herself a check, sends that check over to the used car dealership. 30 days go by, crickets. Why? Because it ended up being a Ponzi scheme.

Damien Martin: Unfortunately.

Tony Nitti: She was down at the bottom of that pyramid. And so she gets nothing back. And now 2015, the year she made the payment, the year ends and she's out $150,000.

Now, fortunately for Franklin, her boyfriend was a stand-up guy because he, in 2016, paid her the $150,000 back. And she put it right back into that prison food fund account.

Now, she did get in trouble for this: The county was not happy with her, and they dragged her in front of a committee and they looked at what happened and this unauthorized use of the money. But ultimately they said, "It's a no-harm, no-foul situation because the money went back in, so we're going to hit you with a $1,000 fine and call it a day." And so from there, while she avoided any real trouble with the county, she did end up in some tax trouble. I think, if I remember, D, she ended up serving 24 months, I think, for fraud.

But she ends up with some tax issues. And in 2018 they realized she hasn't finished her 2015 return, hasn't finished her 2018 return. So two things happened that we'll talk about, one in detail, one more briefly. On the income side, simple, the IRS says, when you took out that $150,000 in 2015, that should have been taxable income to you. Why? We'll get into that in just a moment. But it should have been taxable income.

Then in 2018, when she got into these tax troubles, she took another $44,000 out of the prison fund, reported it as income on her tax return on a Schedule C, and then also used it to pay her professional expenses and deducted $44,000 of legal fees. So her Schedule C netted to zero. So this is it, the IRS is saying that $150,000 is income. Why?

What's so fascinating about this, D, is to get to the answer why, we actually have to traverse through three of the most important Supreme Court cases that have ever been published from a tax law perspective. And so we can learn a lot. But we talked already about the 16th Amendment and section 61 granting Congress broad taxing power and incomes from whatever source derived.

But of course, you occasionally need help defining income. And so when we get into those cases, well, we'll see how the courts do it, but first, what did the IRS allege? They alleged that this was income largely for two reasons. When you took out the money, you now had dominion and control over that money, and we'll see why that's relevant here in a moment.

And what they did was interesting. Originally, D, they just said, "Hey, this was business income to you when you recognized it in 2015." Then they changed their tune because the Service realized if they called it business income, the taxpayer had an NOL [a net operating loss] from 2016 that could be used to carry back and help reduce that business income. So instead they said, "It's not business income, it's embezzlement income. You embezzled this money, that's not trade or business income, so your NOL can't help you there." So we got two somewhat alternative arguments that when writing the check to yourself, you acquire dominion and control, and you embezzled this income, and that's why it's taxable to you.

Let's unpack that from the Supreme Court's perspective. So it starts in 1955, doesn't start chronologically, but in 1955 with Glenshaw Glass, it's a case you and I have talked about before, our modern definition of income. And that case involved punitive damages.

And going back to a previous case from the '20s, Eisner v. Macomber, income was thought to be something you received in exchange for goods or services or both combined. Capital and labor are both combined is the other way they put it. And here, the company got punitive damages, and they said, "Well, punitive damages, that's not from me selling goods or services or from capital or labor, that is somebody being punished and having to pay me. So under the old case, Eisner v. Macomber, this is not taxable income to me."

And Glenshaw Glass said, "Look, that's an outdated definition of income. We believe taxable income has three characteristics." Number one, we mentioned it earlier: a clear accession of wealth. You go to bed richer than when you woke up in the morning.

But number two — and this goes back to that Moore case that we didn't talk about in the podcast, but you and I beat the heck out of for the AICPA podcast a couple of years ago — the income has to be clearly realized. It doesn't mean you necessarily have to have cash in your pocket, but you have to have been enriched in some way that you benefited from.

And then third, you need to have dominion and control over that income. You need to be able to spend it as you wish. And so there's those definitions of income there. And we'll come back to that first idea of accession of wealth here in a moment when we talk about the way that the court ultimately ruled. But then you have a more interesting aspect — well, let's table that for one sec; we'll get to it.

So they're saying you acquired dominion and control over this cash when you wrote the check to yourself; you had an accession of wealth, clearly realized. You wrote the check to yourself, and now you have dominion and control over it. And Franklin responded by saying, "I always had dominion and control over it. I was always in charge of that account. I always had to pay for any shortcoming. I could always pocket any excess. That account and me were interchangeable. So me writing a check to myself, it didn't give me any new dominion and control." And we'll see that the court agreed with that argument.

So then there's this second competing argument that the income was embezzled and therefore she had income under what's called the claim of wrong doctrine. And I find that fascinating — I love giving the history, we'll go through it really quickly. But when we define income like Glenshaw Glass did, that's fine. It's one thing to know what is income; it's another thing entirely, D, to know when we had income. And the question of when was actually answered almost 30 years prior, in another Supreme Court case, [North American Oil Consolidated v. Burnet]. And you can imagine why this case would be so important to the tax law. It had to do with a company [whose] land was taken over by the federal government, and they were going to be receiving payments from the federal government. That they got a payment in a given year that the government wanted to ultimately challenge and potentially claw back. And their argument was, "When do I have to recognize this: when I first receive it, or when I absolutely know I don't have to pay it back?"

Or if we want to put it in terms that people can probably conceptualize better: D, you work for a company that pays you on a commission. And here at the end of 2025, they pay you a $50,000 commission. It's in your pocket; you can do with it what you will. You got an accession of wealth, clearly realized, dominion and control. But now they come up to you next week, near the end of the year, and they say, "We think we did the math wrong and we think you owe us $15,000 back."

The year ends and you haven't settled your dispute. Now imagine, it's January of 2026 and you settle your dispute and you're like, "I'll pay you back $10,000, not $15,000, but I'll pay you back $10,000." So now it's tax return time next year. And you know that you got $50,000 in 2025, you ultimately only got to keep $40,000 because you paid $10,000 back in 2026. What number do you put on your tax return for income?

And what North American Oil v. Burnet says is it creates this claim of right doctrine. We can't afford to sit around and wait until all possible contingencies are extinguished before you're going to recognize income. The first year that you have a claim of right to income that you can use freely, that you have complete disposition over, that is the year you recognize the income, regardless of the fact that something could occur in the future that might make you have to pay it back.

And so what that establishes is that, in your example, D, when you got $50,000, even though you paid $10,000 back before you filed your taxes, doesn't matter: You have $50,000 of income in 2025; you'll deal with the $10,000 repayment separately in 2026. This claim of right doctrine is critical. Otherwise you would just create a mess when it comes to timing of income recognition.

And so what does any of this have to do with our case? Well, years later in the Supreme Court, again, a case called [James v. United States], you had someone who embezzled money. And they creatively argued, "I don't have taxable income under your whole Glenshaw Glass claim of right theory or principles because I never had a claim of right to that income because it was ill gotten. I got it through illegal means. And so how can you say I had a claim of right to that income when I had no right to that income? I knew it wasn't mine. I knew if I got caught, I was going to have to give it back."

And James is where they came up with the creatively coined claim of wrong doctrine. And the claim of wrong doctrine says, "We don't care how you got your money. Whether it was legally, illegally, if you have money that you can use at your disposition without a consensual obligation, express or implied, to repay that money, you've got income in that year." And so here we got to see all these cases cited, which is fascinating as all heck for a case like this.

But they said, "Claim of wrong doctrine, you embezzled this money, Franklin, and yeah, you paid it back in the next year, but just like the Damien example, you've got $150,000 of income in 2015, and we'll deal with the repayment in 2016."

But the judge in this case, Judge [Elizabeth Crewson] Paris — who I got to know a little bit last year, also a graduate of the University of Denver — Judge Paris, she saw things differently. What she did is she looked at the scope of everything that happened and said, "I get where you're coming from, IRS, with this argument about embezzlement, but the tax law has long distinguished between what might look like embezzlement and what might actually be an unauthorized loan."

And you said at the outset, D, God knows how many minutes ago, we were going to differentiate between income and a loan. It's important, man, because Glenshaw Glass, the first staple is, do I have an accession of wealth? And if I loan you $100, D, right now, you feel maybe like you're richer, but are you?

Damien Martin: $100. Well, no, because I owe you $100 back.

Tony Nitti: Yeah, if you were keeping a balance sheet, and I know you do, you keep your own little personal balance sheet.

Damien Martin: Yeah, I'm an accountant, I mean, after all, Tony.

Tony Nitti: Debits and credits, yeah, your debt of $100 cash is going to be offset by $100 due to Tony. And so you're not richer, you have not been enriched at all. Now, we'll come back in a later case and talk about what might make you be enriched. But the point is, if it's truly a loan, you don't have income because you're no richer because you've got to repay it.

And so what Judge Paris did was say [was], "I've got every reason to believe that Franklin taking this cash out was not embezzlement. She wasn't charged with a crime. It was an unauthorized loan. Should she have done it? Probably not. But the reason she did, she didn't hide it from anyone — other people had access to that account, she didn't hide it, she saw the writing on the wall that she needed more money to go into this account. And she saw a quick fix way to make it happen and had every intention of putting that money back in, and did in fact put that money back in."

And so she just ultimately concluded that there aren't the elements of income here. It's not a Glenshaw Glass issue because there's no accession of wealth; there's no dominion and control because she already had dominion and control; there's no claim of wrong doctrine because there was no embezzlement. This was a poorly conceived and executed unauthorized loan, but still a loan.

And you said it in the most simple form: If I borrow money, it's not taxable income to me because I have to repay it. And she believed that when James says if you receive income, legal or not, without a consensual obligation to repay, it's taxable income. She believed here there was a consensual obligation on Franklin's part to repay the amount to the account.

And so taxpayer wins in this case on the 2015 issue. Does not have to include that amount of income. And like I said to you, from a predictive perspective, I don't know that I anticipated that was going to be the outcome.

Damien Martin: Right. Well, again, you saw the money come out, figure, hey, yeah, one of those three cases is going to trip us up somewhere here, one of these standards, right?

Tony Nitti: Yeah.

Damien Martin: But in fact, no — which I think, again, it all turns on the facts. And I know, and this is something I often talk about with my teams as we're going through it: Just because I got $100, and you told me that, or I guess I tell you that I got $100, that's not enough to know whether it's income or not. I got to know, do I have to pay it back? All these other pieces.

But I'm not doing my job, Tony, if I don't go back to those expenses, the 2018 issue. We got to talk about that, we got to talk about that because it's interesting, especially in the world that we live in today.

Tony Nitti: So yeah, in 2018 she's learned her lesson that, "Hey, if I take out money from this account, maybe I should report it as income, particularly if I don't intend to pay it back." And she didn't intend to; she wanted to take out $44,000 so she could pay her professional fees like her attorneys to help her out of the tax mess. And what happened here is she picked up the $44,000 on Schedule C, she offset it with a $44,000 deduction.

And the IRS came in and said, "We're fine with the income pickup, agree with that. You shouldn't get a deduction here." And the reason why is something we're going to talk more about later. But remember how this all started: She's an employee. She's not in the trade or business of managing this prison fund account. They said, "Look, this isn't a trade or business expense under [section] 162 because you're not in a trade or business." So it can only be one of two types of expenses. It could be a personal expense. Damien pays an attorney in his personal capacity under section 262, not deductible, personal expense.

Or it could be, what, an unreimbursed employee expense. And I caught what you did earlier, buddy — you said "in the world we live in" because you know that there's no place to deduct unreimbursed employee expenses in the current world. Because in the Tax Cuts and Jobs Act, they added 67(g) to the code. And 67(g) says no more unreimbursed employee expenses until 2026. And then what happened in the One Big Beautiful Bill?

Damien Martin: Permanently gone.

Tony Nitti: Gone.

Damien Martin: Totally gone. Yeah. Well, the deductions are, I guess; not 67(g).

Tony Nitti: Yes. Yeah. Either way, they were going to lose those deductions, whether it's a personal expense or whether it was an unreimbursed employee expense. In either capacity, they're gone.

Damien Martin: Let's round out our income conversation here. So it's [Corri A. Feige v. Commissioner], T.C. Memo 2025‑88, this decision [came out] in August. It deals with, I think, a really interesting section of the code: section 83, some nuances there. So yeah, tell us about the case, set it up for us.

Tony Nitti: Probably my favorite of the six cases, for reasons that will become clear. Somehow, I don't think you and I have done an 83 discussion on this pod, D.

Damien Martin: So I'm going to tell you, Tony, we have not. I thought that because I was like, "Gosh, is that true that we've never covered section 83?" And I actually don't think we've landed with a good case to deal with it. But it is one of those areas that, again, comes up frequently, or not infrequently, and I think is also commonly misunderstood. So I think the combination of those two things make it ripe for discussion for the two of us.

Tony Nitti: I do. And then what I also love about it is two little words that we're going to find here buried in one of the arguments: treasure trove.

The facts in Feige are the most simple of any we've encountered so far. We have an employee, W-2 employee, for a corporation whose stock is traded on the public market. First I think in Singapore, and then eventually it moved over to Australia.

So as part of her role as an employee, she is part of a program where she can receive shares of the corporation's stock. And the plan is such that she doesn't own it free and clear, and we'll talk about why that would be the case in most situations, but instead she's going to vest in stock 25 percent for four consecutive years.

So in 2013, just to keep things simple, she's granted the right to 400,000 shares of corporate stock. If she's employed at the end of the year in 2013, she'll get 100,000. End of 2014, she'll get another 100,000, and so on for the next two years. So she's part of this plan that's going to give her 100,000 shares each for four years. The plan says if you're not employed on the last day of the year, you don't get your shares for that year. You forfeit your right to the shares. And that can only be overcome by unanimous consent of the board, where we can decide we're going to be good folks and give you the shares anyway. That's it for that section of the facts here.

Now we go to November of 2014, and the company's on some hard times, D, and they have to let her go. And she has a seven-day period where she can challenge being let go. She chooses not to, and she separates from service. And her separation agreement, it just says, "That's it, that's all. No covenant not to compete. You don't have any type of restriction on services you can provide. So it's been real, good luck in your next venture." And she's fine with that.

Until early 2015, [when in the] early days of January, she notices in her Charles Schwab account, 100,000 shares had been added of the company's stock to her account that represent the shares she would've been due on 12/31/2014 had she still been employed. But she was aware that her agreement said you only get those 100,000 shares if you are employed on the last of the year. She knew she wasn't.

And so she's like, "All right, this is a mistake." So she picks up the phone and calls a couple of people. But I told you the company was on hard times; everybody she calls has also been let go. So this is not going particularly well. So she gives up on it for a little bit until what shows up in her mailbox? A W-2. And that W-2, in addition to her cash-based compensation, shows $75,000 of stock-based compensation reflecting the fair market value of those 100,000 shares.

Now, this is more than just an inconvenience. This is, "I got to pay tax on this stuff." And so she makes a couple more calls, but nobody at the company can help her with an amended W-2. So long story short, she just throws up her hands, says, "No one can undo this for me, so I'm just going to undo it myself." And when it comes to tax return time, she just does not report the $75,000 of income. And when you've got a situation where the IRS has a W-2 with $75,000 in one of the boxes and it doesn't end up in a tax return, it's going to get noticed.

Damien Martin: Automatically. Basically, the matching notice, you're getting the matching notice. Yeah, yeah, yeah. That's an almost sure thing.

Tony Nitti: So the Service comes in, they say, "You got $75,000 of income that you didn't report, and all under the principles of section 83." So you said that's what makes this case interesting, so let's learn a little bit about it and see who was right, who was wrong. And honestly, it's her argument about one element of 83 that makes me absolutely love this case. But section 83, you have to be patient before you even get there — you have to start under 61. We already talked about 61: income from whatever source derived. And there's no more pure source of income than compensation for services.

And so, Damien, you're an employee, you get your paycheck, you know you're paying tax on it. But compensation doesn't have to be in the form of cash. I know when you joined EY, like Mohawk Metal and Duberstein, they just lavished you with a brand new Cadillac, which you so proudly drive around downtown Chicago. That Cadillac, even though it's not cash, you would have to value that Cadillac and include it in your taxable income as compensation. No different than the cash.

Damien Martin: No different.

Tony Nitti: And so if you're compensated in property, the value of that property is included in your taxable income like anything else. But what if instead of EY giving you that Cadillac, imagine you work for a public-traded company and they give you shares of stock. That stock is worth a thousand bucks. Under the general rule of 61, you pick up $1,000 of income, no different than the Cadillac. But it's very unlikely your employer is going to give you shares of stock worth $1,000 and say, "You own free and clear today." Why? Because they want to tie you to the company.

Damien Martin: They want me to stay.

Tony Nitti: Yeah, D, to earn those shares. And so they're going to restrict your ability to own those shares. You're going to have to earn them. And we'll talk about the two ways that you can earn them here in a couple of moments. But the simplest example is, Damien, you'll get to keep these shares if you're here five years from now. At the end of five years, you'll vest in these shares.

So if you think about it that way, pretty unfair to tax you on $1,000 of value today if you may not be here in five years. You might never get to own those shares. And so instead, when you have restricted property issued in exchange for services, which is what we're talking about here, that is not governed by 61; that is governed by 83.

And 83 is going to take a logical approach and say we shouldn't tax you on $1,000 of value today because you might never be here in five years to own those shares. We're not going to tax you until one of two things happens, the earliest of the two. Either one, those shares become no longer what we call subject to a substantial risk of forfeiture, or number two, they become transferable. And we'll dive into what those things mean.

But if those shares don't vest for you for five years, we'll find that that means they're subject to a risk of forfeiture for the next five years. So when you vest after five years, then the value at that time is what's going to be relevant. And maybe the stock was worth $1,000, now it's worth $9,000 — you're going to pay tax on $9,000. So yeah, you got to defer it for five years, but you're subject to whatever the value was then.

Damien Martin: At that time. Yeah.

Tony Nitti: Now you can overcome that, Damien — I mean, that's not what we're here to talk about, but when you get those shares worth $1,000, even though you're not going to vest for five years, you could gamble.

Within a 30-day window, you can make an election under 83(b) to say, "I want to pretend I own the shares free and clear right now because I'm betting that, one, I'll be here in five years, and two, the value's going to be much higher in five years. And I would rather pay the tax on $1,000 now than $9,000 five years from now." And so that's how 83 works.

And what the IRS said in this case is that this is a clear example of section 83. You were given stock in exchange for services, and in the year you received them, 2014, they were no longer subject to a risk of forfeiture. They were freely transferable. And so slam dunk, you have taxable income. So let's take a look at the components, substantial risk of forfeiture and transferability, and just see how it played out and why this case gets so interesting.

When you talk about stock being subject to a risk of forfeiture, the risks of forfeiture typically come in two flavors. Number one is a service requirement. As we said, Damien, you've got to be working here at the end of every year and you'll vest over time. Or you've got to be here for five years and you'll vest in one cliff-vesting-type structure.

Or you could say, "Damien, you're leaving the firm; you don't get these shares for two years unless you comply with our noncompete." So you could also have a restriction from providing services as being part of your service requirement. But anything that's tied to your performance or nonperformance of services is respected as something that creates a substantial risk of forfeiture.

And here the Service said, and the court agreed, "You're obviously not providing future services, you got terminated. We looked at your separation agreement, there's no covenant, so there's no restriction on the performance of services. And so there's no service element here, so that's not creating a substantial risk of forfeiture."

You can also create a risk of forfeiture through what I call performance obligations — things tied to the reason you gave someone the stock in the first place. The reason I gave Damien stock as a corporation is because he's good, he makes me money, he increases profitability, and I want to tie his ability to get stock to his ability to continue doing that job. And so I might say you only get this stock next year if EBITDA increases by 10 percent. That's also a valid form of substantial risk of forfeiture. And none of that was present in this case, either. There was no performance obligation. And so clearly the stock, when granted to her, was not subject to a risk of forfeiture.

Now what's interesting, D, is remember what I said, under 83 you don't need both. You don't need it to be not subject to a risk of forfeiture and freely transferable. As soon as it's one or the other, it's taxable. So I'm not entirely sure why the court even bothered to look at the transferability issue. But boy, am I glad they did, because it's my favorite part of the case.

Because here she argued — she being Feige — argued that this stock is not transferable by me. Why? Because I wasn't supposed to get it, it was a mistake. Because of that, this is akin to treasure trove. And I should have to follow the rules governing treasure trove to determine when I own this property. And as we'll see, why she said this, under Alaska state law, where she resided, I don't own this property free and clear for three years, [after which] the employer loses the ability to come get this stock back from me.

What on Earth is treasure trove, and why is it so fun to talk about in graduate tax programs and LLM programs and things like that? OK. Ready buddy? So you're walking down the street and you find a wallet and it's got $500 in it. If you're young in your career, you would think that finding something of value is well-worn territory in the tax law.

But the truth is, when it comes to cash treasure trove — and that's what treasure trove is, finding something that didn't belong to you that has undeniable value — there is one court case in 110 years about cash treasure trove. There are no court cases about noncash treasure trove, which is actually what we're dealing with here because we're talking about stock.

Damien Martin: Stock, yeah.

Tony Nitti: So treasure trove, when you find something that didn't belong to you, when is it income? How much of it is income? The one case that exists is a case called [Cesarini v. United States]. And in Cesarini, you had a family that purchased a piano at a yard sale in 1957. And in 1964 they're cleaning out the innards of that piano — and that's a technical term, Damien. I know as a music major, you know that the inside of the piano is referred to as the innards.

Damien Martin: I was going to let it go, but yeah, the innards, yes, that's it.

Tony Nitti: They're cleaning out the innards of the piano and they find about $5,000 in cash. And this is where you start to realize why there's no treasure trove cases — because they put the $5,000 on their tax return. They report the income.

And then they realize, what the hell did we just do? Why would we pick that up? No one else on the planet would pick that up. And so they amend the return to remove the $5,000, which obviously gets the attention of the Service. So if you want to know why there's no treasure trove cases —

Damien Martin: Don't report it.

Tony Nitti: Generally speaking, listen. I can't speak to the morality of the average human, but you find money somewhere in your piano, you're probably not throwing it on your 1040, I would think. But they did. They removed it. It became a point of contention. And they wanted to argue that it should have been income when they bought the piano in 1957 because that was beyond the statute of limitations.

The court, citing a regulation under [section] 61 and a revenue ruling, said, "We have guidance here on treasure trove. It says that treasure trove, when reduced to your undisputed possession, is included in income in its value in U.S. dollars." And so they did have to take a quick look at state law to see if anybody could possibly have a claim against them at that point for that income when they found it in 1964.

But they said, "You didn't reduce it to your undisputed possession in 1957 because you didn't even know it existed. And had you sold the piano yourself in 1959, you would've had no right to that cash; you didn't even know it was there. So it wasn't until you discovered it that it was taxable income. And when you discovered it in 1964, no one else had a state right claim, and so that income belonged to you then."

And so they ended up having to pay tax on it. That's all we have from a cash treasure trove perspective. The reason I say that academics love to talk about treasure trove is more on the noncash side because it's a great way to illustrate the difference between how our law can technically apply and how it often works in practice.

And maybe the prime example that professors always use is imagine it's 1998, D, and it's the home run chase, it's [Sammy] Sosa and [Mark] McGwire going back and forth trying to break [Roger] Maris's record of 62, and you're sitting in the left field bleachers, and all of a sudden McGwire's record-breaking 63 lands in your lap.

Go back to what we talked about — what makes something income [according to] Glenshaw Glass? An accession of wealth. I've got this ball that we know is going to be worth something realized. Well, I mean, again, ball's in my hand; no one's getting it from me. I've got something of value here. It's income. And then also your undisputed possession. No one else has a right to that ball. McGwire doesn't have a right to it. I caught it, it's my ball. So all the elements are there of taxable income.

And with this revenue ruling and with the regulation, the IRS has every tool to say that the moment you catch that ball, we are going to value it and we're going to tax you on it. They have every right to do that. But in practice, we just don't see the IRS seem to have much of an appetite for immediately taxing noncash treasure trove.

Instead, they seem very content to allow you to have a further realization event where you sell the property and then they'll step in. And I would imagine the reason for that is, and the reason you can't find court cases about noncash treasure trove and the timing of income inclusion, is just because it's a valuation nightmare.

And the reason people use the home run ball is because it illustrates these nightmares so perfectly. D, you catch number 63, and that thing is worth who knows what. People had been waiting 30 years for this record to be broken, so it's worth a lot. But what if you catch it in the third inning and the game gets rained out in the fourth and it never goes official? Ball isn't worth anything all of a sudden. Or what if it's worth something for a couple of days, but then Sosa hits three in two games and all of a sudden he's the new record holder? What is your ball really worth now?

And so the valuation thing is so tricky that it's one of those areas of the law where we have guidance that clearly says as soon as that's reduced to your undisputed possession, as soon as you catch that ball, we can value it and tax it. It just doesn't seem like the Service is inclined to do it.

Now this is the part where listeners say, maybe even you're saying, "All right, when does this ever apply in the real world?" Well, we're talking about a case, but this year I got presented to me maybe one of the most fascinating questions in my 30-year career, which deals with noncash treasure trove. And there was someone who reached out to me and said, "I've got this person who bought a ranch in Wyoming." And you can probably already start to piece together where the story is going.

But they bought this ranch and they started moving some dirt around and they found some dinosaur bones. They were doing some renovating, some excavating, and they not only found bones, but they found a complete intact skeleton, which they told me at private auction would fetch upwards of $30 million.

And so the question being posed to me as the resident tax egghead was, how do we handle this? And all I could tell them is what you and I just covered, which is, look, the IRS has the tools in place, they've got a regulation section, they've got a revenue ruling, they've got the Cesarini case to all say, as soon as you unearth that skeleton, they could value it and tax you on it, but they just haven't seemed inclined to do that.

And so I said, "You can probably feel comfortable that you won't be taxed on anything until you eventually sell at some type of private auction." But from my perspective, dude, that's where the analysis really gets fun because it's not like it's over; it's like, all right, now you're selling, what is the nature of that sale? Is it a capital asset? I mean, not in the trade or business of selling dinosaur bones, so it's not inventory; it's probably a capital asset.

Did you generate any basis in that asset by digging it up or spending the money to bring up a paleontologist? I presume there's got to be some basis element. Dude, what is your holding period? Did it start with the first bone, the last bone? Did it start when you bought the ranch? Did it start in the Jurassic era? I have no idea. It could be any of those things. And then lastly, even if you do get long-term capital gain, I'm guessing it's subject to a 28 percent collectibles rate. If that's not a collectible, I don't know what it is.

Damien Martin: I'm not sure what it is. Yeah, that's fair.

Tony Nitti: And so this stuff, you think it's well-worn territory, but it's not. There's guesswork to be done here. And so, of course, after that very large, long digression, we have to now come back to the Feige case.

And what she was arguing, dude, is that this is treasure trove. "I wasn't entitled to these shares, they don't belong to me, it was an error. And so I am no different than the Cesarini family finding something in a piano — where, according to Cesarini, it's not income to me until it's been reduced to my undisputed possession under state law. And here in Alaska, the corporation has three years to take this property back from me. And so I can't transfer it right now because for three years it doesn't belong to me. And so under these principles, I shouldn't be getting taxed on it."

And I love that they went that way, [we] don't get to see treasure trove mentioned much at all. Not a treasure trove case, though, according to the court, because they just said, "Look, this isn't treasure trove, this isn't something where [you] found five grand in the piano, don't know where it came from. You know who gave you this stock. There's only one other party involved, and they don't seem inclined at all to come wrest it back from you. In fact, when they issued you the stock, they said they can look the other way if you terminate service and the board could agree to give you the stock anyway. And so we have to presume here that they know what they're doing. They gave you the shares, they don't seem to want them back. This is not a Cesarini treasure-trove-type issue where you're like, 'I don't know who the true owner is of this property.' We know who it is. And by all appearances at this point, it's you. And so it is transferable. It is not subject to a risk of forfeiture. You've got to pay the tax on the $75,000 of income."

So I'm guessing when we started this case, D, you didn't think we were going to go into dinosaurs and home run balls and all that stuff.

Damien Martin: I did not. That was a curveball, I guess you could say, maybe, I don't know, just to keep that going.