Television station Channel 2 receives $200,000 from Harry's Auto Parts, Inc., to air Harry's commercials during a local automotive repair talk show in December 2014. December's ratings drop sharply when the show's star quits to work as a mechanic with a NASCAR team. Shortly thereafter, Harry contacts Channel 2 indicating that he wants to discontinue his sponsorship and requests return of $125,000 of the payment. The station continues to air the commercials and keeps the $200,000. Harry initiates a legal suit to recover the $125,000. Which of the following dictate that the $200,000 be included in Channel 2's 2014 gross income? I. Capital Recovery Concept. II. Claim of Right Doctrine.

Question

Quizplus · Accepted Answer

The Claim of Right Doctrine dictates that income received is taxable when there is no obligation to repay, even if there is a dispute over the amount. Since Channel 2 received the $200,000 without an obligation to repay, it must include it in its gross income for 2014.

Television Station Channel 2 Receives $200,000 from Harry's Auto Parts