*281 Decision will be entered under Rule 50.
Petitioner was employed as an attorney by a receiver in a liquidation proceeding from January 12, 1937, to June 25, 1942. On various occasions from 1937 to 1941, inclusive, the court having jurisdiction over the proceeding authorized and approved payments by the receiver to petitioner on account of fees for services rendered, in the total sum of $ 36,500. By order of June 25, 1942, the court authorized a final payment of $ 12,500. Held, the several payments were compensation for professional services, constituting gross income to petitioner when received, and petitioner is not entitled to the benefits of section 107, Internal Revenue Code.
*152 Respondent determined deficiencies in petitioner's*282 income tax liability for the calendar years 1941 and 1943 in the amounts of $ 934.04 and $ 1,532.85, respectively. The sole question is whether petitioner properly applied the provisions of section 107 of the Internal Revenue Code to compensation received for personal services rendered over a period of years. An affirmative issue with respect to a penalty for the year 1943 was waived by respondent at the hearing. Two minor adjustments to net income for the taxable years are not in issue.
FINDINGS OF FACT.
Petitioner, an individual, is a practicing attorney residing in Chicago, Illinois. During the period of years from 1937 to 1943, inclusive, he kept his books and records on the cash receipts and disbursements basis. All his income tax returns, prepared on the cash basis, were filed during the years 1937 to 1942, inclusive, with the collector of internal revenue for the first district of Illinois.
On January 8, 1937, a proceeding was instituted in the Circuit Court of Cook County, Illinois, entitled "People of the State of Illinois ex rel. Ernest Palmer, Director of Insurance of the State of Illinoisv. Central Mutual Insurance Company of Chicago, a corporation," hereinafter*283 referred to as the liquidation proceeding.
Henry G. Miller was appointed as receiver by the court on January 11, 1937. By leave of the court, Miller employed petitioner on January 12, 1937, to serve as his attorney in connection with the liquidation proceeding. Petitioner rendered uninterrupted professional services as the receiver's counsel from January 12, 1937, until June 25, 1942, on which date his services were terminated. Petitioner was required to devote and did devote practically all of his available time, as well as that of his office associates and clerical personnel, to the liquidation proceeding during the 5 1/2-year period.
Pursuant to a petition filed by the receiver "for leave to make payments on account of Receiver's and Receiver's Attorney's fees," the Circuit Court of Cook County on April 7, 1937, entered an order, the pertinent portion of which is set forth below:
The Court Finds that from January 11, 1937, to March 15, 1937, both inclusive, said Henry G. Miller, Receiver and his attorney Lloyd C. Whitman rendered *153 services as, respectively, Receiver herein and attorney for said Receiver substantially as set forth in said Petition and that it is fair*284 and equitable that at this time the Court, without determining the amounts ultimately to be allowed herein to the Receiver or to his said attorney for their services heretofore or hereafter rendered herein, authorize payments by the Receiver of reasonable amounts to himself and to said Lloyd C. Whitman chargeable against any fees which may hereafter be allowed to them respectively for and on account of their respective services, past or future, as respectively, Receiver and attorney for the Receiver herein and that the reasonable amounts so to be authorized paid at this time are $ 3,000.00 to said Receiver and a like sum to said Lloyd C. Whitman as attorney herein for said Receiver.
Now Therefore it is ordered that Henry G. Miller, as Receiver herein, be and he is hereby authorized to pay said last-mentioned sum to said Henry G. Miller and a like sum to said Lloyd C. Whitman out of any funds now or hereafter in said Henry G. Miller's hands as Receiver available therefor, all payments by the Receiver pursuant hereto to be chargeable to the respective recipients against any fees which may hereafter be allowed to them respectively for and on account of their respective services herein*285 as Receiver and attorney for the Receiver herein, respectively.
This order was appealed to the Appellate Court of Illinois, First District, and was affirmed by that court. Miller v. Central Mutual Ins. Co., 299 Ill. App. 194; 19 N. E. (2d) 822.
During the years 1937 to 1941, inclusive, the Circuit Court of Cook County authorized and approved payments to petitioner on account of services rendered by the following orders:
| Date of order | Amount |
| Apr. 7, 1937 | $ 3,000 |
| Dec. 22, 1937 | 3,000 |
| Dec. 21, 1938 | 1,000 |
| June 29, 1939 | 3,000 |
| Sept. 21, 1939 | 4,500 |
| Apr. 30, 1940 | 1,500 |
| June 28, 1940 | $ 4,500 |
| Dec. 23, 1940 | 1,500 |
| Jan. 13, 1941 | 4,500 |
| July 1, 1941 | 1 10,000 |
| Total | 36,500 |
All of the payments allowed in the above court orders were made by the receiver immediately after the respective entries thereof, except*286 for $ 1,500 received by petitioner on July 20, 1938, in connection with two foreclosure actions. In the order of September 21, 1939, the court stated that:
* * * the payment heretofore by the Receiver herein to said Whitman of $ 1,500.00 in full of foreclosure services of said Whitman in the cases of Miller, Receiver vs. Weinstein No. 37S-218 and Miller, Receiver vs. Morgan, No. 37 C-15540 be and it is hereby approved * * *.
By the same order the receiver was authorized to pay the further sum of $ 3,000 to petitioner to be chargeable against the ultimate allowance of compensation. This order also contained the following provision:
*154 It Is Further Ordered that this order shall be and is entered herein without prejudice, either in or as to law or fact, upon the coming in of any further like petition of the Receiver or upon any determination hereafter, in whole or in part, of the fees, if any, of either said Henry G. Miller or said Whitman for any services heretofore or hereafter rendered by them, respectively, to the objections and defenses presented in said answer of the defendant filed herein August 4, 1939, or to or upon any issue of law or fact thereby raised or open*287 to the defendant on the record as the record stands prior to the entry of this order.
The aforesaid orders were all entered in response to petitions filed on behalf of petitioner requesting payments, specific sums in several instances, on account of attorney fees for services rendered. The petitions recited at great length the nature and extent of services performed during specific periods, including frequent approximations of the hours spent at work. Except for payments authorized pending hearings, 2 the advances were generally predicated on the findings by the court itself as to the allegations of services in the respective petitions or by reference to a master for a hearing and recommendation on the question of a partial payment.
All the orders approving interim disbursements, except the $ 1,500 relating to the two foreclosure suits, provided that the sums authorized and paid from time to time were to be chargeable "against any fees which may hereafter be *288 allowed." On the whole, the orders used phraseology substantially similar to that contained in the order of April 7, 1937, and were of the same general tenor throughout. Neither the petitions nor the court orders relating thereto contained any language indicating that the interim payments were requested or granted as "loans."
On June 25, 1942, the court entered its final order with respect to petitioner's compensation, awarding him an additional $ 12,500. The court stated:
This Matter Coming On on the original report of Master in Chancery Daniel A. Covelli, dated May 27, 1942, and the additional Master's Report dated June 8, 1942, both re that portion of Henry G. Miller's Fourth General Report, Account and Petition praying the Court to fix and allow the fees of Lloyd C. Whitman as attorney for the Receiver, and the answer thereto filed by Lloyd C. Whitman, the objections of the parties to said Report and their exceptions thereto, and the motion of the receiver to strike the objections of said Whitman numbered 8, 9, 12 and 15 to said Reports, as objections and as exceptions; and upon due notice to all parties hereto thereunto entitled; and the receiver and the defendant being present*289 in Court by their respective counsel and said Whitman present in Court in person;
It Is Ordered, on motion of the receiver, that said objections and exceptions of said Whitman numbered 8, 9, 12 and 15 be and the same are hereby stricken as impertinent and irrelevant; and
It Is Further Ordered that said Report and additional Report of the Master in Chancery dated, respectively, May 27, 1942, and June 8, 1942, be and the same are hereby approved except as to the amount recommended by the Master to be *155 paid to said Whitman in full of said Whitman's services herein from January 11, 1937, to the date of this order, both inclusive; and
It Is Further Ordered that in payment in full for said services of said Lloyd C. Whitman to the estate herein in liquidation and in settlement and discharge of all matters and claims of and between the estate herein in liquidation and the receiver herein, on the one hand, and said Lloyd C. Whitman, on the other hand said Lloyd C. Whitman be and he is hereby released and discharged from any and all liabilities over or back to said estate or the receiver herein for or on account of the monies heretofore paid said Whitman against or on account of professional*290 services herein, particularly and including all monies advanced or paid to said Whitman under orders touching the same entered by the court herein April 7, 1937, December 22, 1937, December 21, 1938, June 29, 1939, September 21, 1939, April 30, 1940, June 28, 1940, December 23, 1940, January 13, 1941, and July 1, 1941.
It Is Further Ordered that Roy D. Keehn, Receiver of Central Mutual Insurance Company of Chicago, pay forthwith to Lloyd C. Whitman out of the funds in this receivership estate the sum of Twelve Thousand Five Hundred ($ 12,500) Dollars in full for all legal services rendered to this receivership estate and Henry G. Miller, former receiver of Central Mutual Insurance Company of Chicago and in full and complete satisfaction of any and all claims of any nature whatsoever of Lloyd C. Whitman against this receivership estate, Central Mutual Insurance Company of Chicago and Roy D. Keehn, Receiver of said company, having succeeded Henry G. Miller.
Petitioner filed income tax returns for the calendar years 1937, 1939, and 1940, and included in gross income the sums received in those years. He filed no 1938 return because his gross income, including the $ 2,500 paid to him *291 by the receiver, was less than $ 5,000 and his net income for 1938 was less than $ 2,500. On March 10, 1942, petitioner filed a return for the calendar year 1941 in which he reported only $ 4,500 of the $ 14,500 received during that year for his services in the liquidation proceeding. The $ 10,000 payment ordered on July 3, 1941, was omitted from gross income and the rider attached to the return stated that the reason for the omission was that petitioner considered that a refund of this money to the insolvent estate might be necessary. Petitioner filed no income tax return for the calendar year 1943. Petitioner first became aware of section 107, Internal Revenue Code, late in 1941. He filed amended returns for the years 1937, 1939, 1940, and 1941 and a "delayed" return for 1938 in which he allocated the total sum received for professional services in amount of $ 49,000 over the several years involved.
Petitioner filed his 1942 income tax return on March 13, 1943. He included $ 8,166.66 of the receivership compensation in gross income under section 107, rather than the $ 12,500 actually received in that year.
Respondent determined deficiencies for 1941 and 1943, the latter pursuant*292 to section 6 of the Current Tax Payment Act of 1943, taking the view that the provisions of section 107 were not applicable to petitioner's fees. On this theory, he included the payments actually *156 received by petitioner in 1941 and 1942 in the respective gross incomes for those years.
The payments made to petitioner as attorney for the receiver represented compensation for services in the years when paid to and received by him.
OPINION.
Petitioner contends that all payments received by him as attorney for the receiver during the years 1937 to 1941, inclusive, constituted loans rather than compensation, with the exception of $ 1,500 received in 1938 for services in connection with two foreclosure suits. He bases his contention on the fact that the interim payments were "on account" of services rendered and were chargeable against the total fee to be ultimately determined. Petitioner takes this position in spite of the fact that in all of the petitions filed on his behalf compensation was requested, and proof of the services rendered was submitted to and considered by the court. There was no showing that the court or the receiver could or did actually authorize loans.
We*293 have no hesitancy in concluding that the partial payments authorized by the local court were compensation for services and were not loans. The petitions fully described the nature and extent of past services and frequently the court made findings that petitioner had rendered services substantially as alleged. In other instances, the court adopted the recommendations of a master to whom the question of interim payments had been referred. That the payments were allowed "on account" served only to assure the final determination of petitioner's fee. This language in no wise indicates that a loan was contemplated. None of the normal attributes of a loan, i. e., promissory notes, security, or interest, were exacted by the court. Furthermore, no restrictions were imposed on the disposition, use, or enjoyment by petitioner of the intermediate allowances.
The evidence further indicates that petitioner received the partial payments under a claim of right and treated them as compensation. He reported the allowances received in 1937, 1939, and 1940 as current income in his original tax returns for those years. It was not until he became cognizant of the relief provisions of section 107*294 in 1941 and after the final court order of June 25, 1942, that he sought to reclassify all advances as "loans." From the substance and form of the petitions and orders and the treatment by the petitioner of the proceeds, it is our conclusion that the interim payments did not represent loans to the taxpayer.
Petitioner argues, further, that the sums received prior to 1942 could not be taxable income when received, inasmuch as he might be ultimately required to refund a portion thereof if the total of the *157 partial payments exceeded the final fee. Although it is true that the court reserved the right to determine the total amounts payable to petitioner for professional services rendered, there was no strong probability that he would be forced to repay the advances already received under a claim of right, nor was he in fact required to do so.
The question of receiving income subject to an infirmity in the claimant's title has already been resolved in other courts. In North American Oil Consolidated v. Burnet, 286 U.S. 417, the United States was contesting the beneficial ownership of the North American Oil Corporation of certain oil lands then*295 in receivership. Pursuant to judicial decree, the receiver in 1917 paid over to the latter certain profits earned on the property in 1916. The decree was affirmed, following appeal by the United States, in 1920. In holding that the profits constituted taxable income to North American Oil Corporation in the year when received (1917), notwithstanding the fact that the ownership of the earnings was rendered uncertain by the appeal, Justice Brandeis stated:
* * * If a taxpayer receives earnings under a claim of right and without restriction as to its [sic] disposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent.
Jacobs v. Hoey, 136 Fed. (2d) 954; certiorari denied, 320 U.S. 790, is a case involving facts quite analogous to those of the instant proceeding. There the taxpayer, an executor, was paid amounts from the estate in 1936 and 1937 as advances "on account" of unearned commissions. These payments were not approved by the Surrogate of New York County*296 until 1938. The taxpayer treated the advances as his own funds and reported them as current income in his tax returns for the years when received. Later, the taxpayer desired to reclassify the payments as 1938 income in order to offset capital losses incurred in that year. He argued that the advances represented loans until approved by the surrogate in 1938. The Circuit Court of Appeals for the Second Circuit, relying on North American Oil Consolidated v. Burnet, supra, affirmed the District Court decision, holding that the payments received in 1936 and 1937 were current income and properly taxable in those years. This decision was bottomed on the fact that, while there may have been legal right in the surrogate to disapprove the earlier payments, there was no reasonable likelihood that he would do so.
We think the general principle of law enunciated in these two cases is determinative herein, notwithstanding the necessity for final approval of petitioner's total compensation by the Circuit Court of Cook County. Such a requirement per se can not be deemed conclusive in the determination of Federal tax matters. The compensatory payments*297 *158 in amount of $ 36,500 which were received under a claim of right by petitioner during the years 1937 to 1941, inclusive, constituted taxable income when received. It follows, therefore, that section 107 is not applicable to these facts, inasmuch as petitioner did not receive at least 80 per cent of his total compensation in 1942.
Decision will be entered under Rule 50.