Although the tax court has on occasion denied certain taxpayers the right to avail themselves of § 1341, it has never adopted the IRS's distinction between actual versus apparent claims of right as the basis for such decisions. See, e.g., Pahl v. Commissioner, 67 T.C. 286 (1976); Blanton v. Commissioner, 46 T.C. 527 (1966), aff'd, 379 F.2d 558 (5th Cir. 1967). The Supreme Court has not directly addressed the question, but it has indicated that taxpayers in DRI's position — adversely affected by a change in tax rates after the year in which income was received — suffered the "inequities" that § 1341 attempted to correct.

Ignoring the plain language of the statute and the controlling regulation, the IRS concluded that DRI did not meet the terms of Section 1341(a) because DRI had an "actual" unrestricted right to the deferred tax component in the years at issue and that, as a consequence, DRI could not have the "appearance" of an unrestricted right. (Def.'s Initial Pre-Trial Br., p. 7; Def.'s Proposed Conclusion of Law No. 3). The IRS finds support for this rather tortured reasoning in the opinion of the Tax Court in Blanton v. Commissioner, 46 T.C. 527, 1966 WL 1180 (1966) and three of its decisional progeny. In Blanton, the taxpayer received director's fees from a corporation and later entered into an agreement to return them if the IRS subsequently determined that the fees were excessive.

For the purposes of section 1341, the original "circumstances, terms, and conditions" of the payment of an income item determine whether the taxpayer has an unrestricted right to it. Blanton v. Commissioner, 46 T.C. 527, 530 (1966) (holding that claim of right does not apply when the taxpayer was not obligated to return any portion of income received per the circumstances, terms, and conditions of the original payments), aff'd, 379 F.2d 558 (5th Cir. 1967). A taxpayer's unrestricted right to an income item that is not subject to contingent repayment cannot be altered by subsequent agreements. Id.

01 received before December 14, 1970. In George L. Blanton, 46 T.C. 527 (1966), affd. per curiam 379 F.2d 558 (5th Cir. 1967), the taxpayer repaid to his corporate employer the portion of his director's fees that had been determined by the Internal Revenue Service to be excessive. The repayment was made pursuant to a contract entered into a year after petitioner had received the salary.

The availability of the section is conditioned on the petitioner's showing that a deduction was allowable for 1961 ‘because it was established after the close of * * * (1960) that the taxpayer did not have an unrestricted right to * * * (the proceeds of the 1960 sale).’ The facts of the instant case do not satisfy that condition as under the terms and conditions of the 1960 sale the petitioner was never obligated to return any portion of the sale proceeds to Harriman Ripley Co. See George L. Blanton, 46 T.C. 527 (1966), affirmed per curiam 379 F.2d 558 (C.A. 5, 1967). In addition, the petitioner has not shown any payment to Harriman Ripley Co. that was deductible.