(concurring):
The basic argument for not taxing these amounts in the year of receipt is that these funds are similar to securities in a lease agreement. I do not believe that they are similar. Advance payments by a lessee to a lessor, if made only to secure the lessee’s performance of its lease agreement, are, in effect, loans which the lessor is obligated to repay and, therefore, the advance payments are not considered gross income to the lessor. Clinton Hotel Realty Corp. v. Commissioner of Internal Revenue, 128 F.2d 968 (5th Cir. 1942); Warren Service Corp. v. Commissioner of Internal Revenue, 110 F.2d 723 (2d Cir. 1940). If, however, the security deposits are, in reality, prepayments of rent received at the beginning of the lease-term, they are gross income to the lessor and taxable in the year of receipt. Renwick v. United States, 87 F.2d 123 (7th Cir. 1936); Astor Holding Co. v. Commissioner of Internal Revenue, 135 F.2d 47, 146 A.L.R. 993 (5th Cir. 1943); Commissioner of Internal Revenue v. Lyon, 97 F.2d 70 (9th Cir. 1938); Crile v. Commissioner of Internal Revenue, 55 F.2d 804 (6th Cir. 1932), cert. denied, 287 U.S. 600, 53 S.Ct. 7, 77 L.Ed. 523; and Treas. Reg. sec. 1.61-8 (b). The problem is one of classifying the payment based on the purpose for which it is made, and this is generally a factual question to be resolved by an examination of the lease provisions and the intentions of the parties.
The rationale for not taxing security deposits is an analogy to loan transactions in that the advance payments are offset by an obligation to repay the same amount. Here, however, there is no definite obligation to repay the money withdrawn, merely a possibility that plaintiff will repay the money. In the advance payment situation, there is an immediate obligation to repay the funds subject to later events which might result in non-repayment. In this case, there is no immediate obligation to repay the funds and only later events will determine whether repayment will be necessary. The claim of right doctrine applies because prior to these later events plaintiff has the unrestricted and free use of the money and because there is no obliga*533tion to repay the money when it was received.
The only restriction on plaintiff’s free and unrestricted use of the funds is that after the condemnation litigation terminates he may be required to return part of the funds. The possibility of future repayment, however, does not prevent the inclusion in gross income of amounts which, as the Supreme Court has stated, fulfill “[t]he rule announced in North American Oil [Consolidated] v. Burnet, supra, [which] requires a receipt without 'restriction on use’ as well as under a claim of right.” Healy v. Commissioner of Internal Revenue, 345 U.S. 278, 283 n. 14, 73 S.Ct. 671, 674, 97 L.Ed. 1007 (1953).
In United States v. Lewis, 340 U.S. 590, 71 S.Ct. 522, 95 L.Ed. 560 (1951), a payment of $22,000 in 1944 was made to plaintiff as a bonus, which sum he used as his own. In subsequent litigation it was held that the bonus was improperly computed and plaintiff was required to return some. $11,000 to his employer. The Court held that the $22,000 was includible in plaintiff’s gross income of 1944 and that the possibility of its return did not affect its ineludibility, citing as authority its rule stated in North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197 (1932).
In Healy v. Commissioner, supra, taxpayers received salaries from their closely held corporation which, on audit, were held unreasonable compensation. Deficiencies were assessed against plaintiffs individually and also corporate deficiencies were assessed against them as transferees. Taxpayers argued that they were merely constructive trustees of the funds for the benefit of the corporation’s creditors and, therefore, they had no claim of right to the funds. The Court found that they had received the funds under a claim of individual right and not as trustees.
Taxpayers next argued that their use of the funds was not unrestricted because all of the facts which gave rise to the transferee liability existed at the end of the taxable year. The Court rejected this argument and noted that there was no certainty at the end of the taxable year that a transferee liability would materialize. Plaintiff in this case is equally uncertain as to the possible future need to return the funds. The absence of a certain obligation to repay the moneys removes this case from those which equate rent securities to loan transactions. It is as likely that plaintiff will be required to return part of the amount he has received as it is that not only he will retain the amount received but that he will be given an additional award. The language of the Court in the Healy case is clearly applicable where it said:
The phrase “claim of right” is a term known of old to lawyers. Its typical use has been in real property law * * *. The use of the term in the field of income taxation is analogous. There is a claim of right when funds are received and treated by taxpayer as belonging to him. The fact that subsequently the claim is found to be invalid by a court does not change the fact that the claim did exist. * * * [345 U.S. at 282, 73 S.Ct. at 674.]
There is no need to attempt to list hypothetical situations not before us which put such restrictions on use as to prevent the receipt under claim of right from giving rise to taxable income. But a potential or dormant restriction, such as here involved, which depends upon the future application of rules of law to present facts, is not a “restriction on use” within the meaning of North American Oil v. Burnet, supra. [345 U.S. at 284, 73 S.Ct. at 675.]
As noted above, in order to be taxable under the claim of right doctrine, the amount must be received both under a claim by the taxpayer that he is entitled to the money as his own and it must be received free of restrictions on its disposition. The possibility of repayment after subsequent litigation does not affect these requirements. Plaintiff *534here had a claim to the fund based on the condemnation award made to him and he could dispose of the funds as he pleased, free of any restrictions. In these circumstances, the amount is taxable in the year of receipt. As the Court in North American Oil Consolidated v. Burnet, supra, said:
* * * They [the net profits] became income of the company in 1917, when it first became entitled to them and when it actually received them. If a taxpayer receives earnings under a claim of right and without restriction as to its 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. * * * If in 1922 [the year when the litigation was terminated] the government had prevailed, and the company had been obliged to refund the profits received in 1917, it would have been entitled to a deduction from the profits of 1922, not from those of any earlier year. * * *. [Citations omitted; 286 U.S. at 424, 52 S.Ct. at 615]
Plaintiff has urged the court to differentiate this case from the above rules because it involves capital gains and not salaried income, and because the case of Patrick McGuirl, Inc. v. Commissioner of Internal Revenue, 74 F.2d 729 (2d Cir. 1935), cert. denied, 295 U.S. 748, 55 S.Ct. 827, 79 L.Ed. 1693, is controlling. In the McGuirl case, the taxpayer’s property was condemned by a resolution of the New York Board of Estimate in which it stated that the title to taxpayer’s property thereby became vested in the City of New York as of December 1926. Plaintiff occupied the premises until October 31, 1927. No award was made until May 1928, when an amount was tentatively fixed. Plaintiff contested the proposed award and a final court decree was not made until April, 1929. The taxpayer reported his gain in 1929 but contended that it was properly taxable in 1926 when the property became vested in the City.
The court held that 1926 was not the proper year because the amount of the award was not known until 1928 (it was merely a proposed award until then). Therefore, the gain or loss could not be estimated. In contrast, plaintiff in this case knew the amount of the award and was entitled to, and did take, possession of the fund established as his condemnation award. The two cases are very different because the state procedures for making condemnation awards vary. In our case, plaintiff had a sum of money subject to his use and disposition while he was contesting the award. In the McGuirl situation, however, no comparable fund was either available to taxpayer or used by taxpayer during the process of litigating the amount of the award.
An appropriate analogy can be made to cases in which funds were withdrawn from court impounding, pending litigation. These sums were held taxable in the year of withdrawal. See Commissioner of Internal Revenue v. Brooklyn Union Gas Co., 62 F.2d 505 (2d Cir. 1933); Mel Dar Corp. v. Commissioner of Internal Revenue, 309 F.2d 525, 532-533 (9th Cir. 1962), cert. denied, 372 U.S. 941, 83 S.Ct. 933, 9 L.Ed.2d 967 (1963). See also, Rev.Rul. 55-317, 1955-1 Cum.Bull 215.
In the Brooklyn Union Gas Co. case, the New York Public Service Commissioner ordered plaintiff to reduce its rates. Plaintiff attacked the reduction as confiscatory (in a state court proceeding) and an interlocutory order was issued both staying execution of the rate reduction and impounding the amounts collected by plaintiff in excess of the reduced rates. The company withdrew the impounded excess collections by posting a bond for repayment if the reduced rates were later sustained. The Commissioner of Internal Revenue argued that the money was income to the taxpayer in the year when the rate litigation was finally decided. The court, however, *535held the sums taxable in the year when plaintiff either withdrew the sums or had an option to withdraw the monies which it could freely exercise. It held:
* * * Such money [the amounts withdrawn] was income, being payment for service already rendered, and was received by the companies without restriction upon its use. It is true they were subject to a contingent liability to pay back an equivalent amount if the rate litigation ultimately went against them. This liability, however, imposed no restriction upon their use of the money actually in their hands. Nor did the fact that they gave bonds to get it add anything to the contingent liability they were under regardless of such bonds. Termination of the rate litigation merely determined their right to retain income already received. * * *. [62 F.2d at 506]
I see no basis in this case for differentiating between plaintiff’s capital gain income and other forms of income for the purpose of determining when these amounts are properly includible in gross income. A taking is, generally, equated to a sale or exchange for the purpose of income taxation. Commissioner of Internal Revenue v. Kieselbach, 127 F.2d 359 (3d Cir. 1942), affirmed, 317 U.S. 399, 63 S.Ct. 303, 87 L.Ed. 358 (1943). Plaintiff here is a cash basis taxpayer. It is clear that no citation of authority is necessary for the proposition that a cash basis taxpayer must pay tax on income he has received during his taxable year.
In Keneipp v. United States, 87 U.S. App.D.C. 242, 184 F.2d 263 (1950), the Federal government instituted condemnation proceedings against plaintiff and deposited $35,000 with the court. In the same year, 1941, a jury fixed compensation at $48,500. The $35,000 was paid plaintiff in 1941. Subsequent litigation involving the claims of an intervenor were not completed until 1942 when taxpayer received the balance due him, less an amount paid the intervenor. Taxpayer reported a gain in 1941 which the Commissioner of Internal Revenue challenged. The court held that the gain was to be reported in the year when an award is made and also held that the amount received in 1941 exceeded his adjusted basis for the property; at that time taxpayer had a taxable gain in the amount of such excess. The court emphasized the date when the award was made as the critical point in time for determining when such amounts are taxable.
In Nitterhouse v. United States, 207 F.2d 618 (3d Cir. 1953), cert. denied, 347 U.S. 943, 74 S.Ct. 638, 98 L.Ed. 1091 (1954) a case which is remarkably similar to the one now before the court, the United States instituted a condemnation action in 1944 and deposited some $5,000 with the court to be awarded to plaintiff after the amount of the award was litigated. In 1946, plaintiff received a judgment and was paid the previously deposited $5,000. Plaintiff argued that the year of taking, 1944, was when he should report his gain. The court, in discussing the deposited amount, considered whether plaintiff had a right to obtain and use the deposited fund, and found that he did not. It said:
* * * This amount [the $5,000] was in excess of the taxpayer’s basis for the land. * * * Money which has been set apart for a taxpayer and upon which he can draw is subject to tax as of that year.4 The fact that the taxpayer did not ask for the money * * * should not be conclusive.
However, we do not think that this deposit was available to the taxpayer at his will only. To withdraw it would have required a court order.5 And to get that order the petitioner would have to show that he had a clear title to the land free from tax and judgment liens and so on 6 [as required by statute]. [207 F.2d at 620; footnotes omitted.]
In this case, however, the money was set apart for plaintiff and not only did he have an opportunity to obtain the funds, but in fact he did obtain the funds and make such use of it as he saw fit. *536The gain occurred in the year of receipt when the award was made, deposited, and then withdrawn. There is no need to concern ourselves with the hypothetical circumstance where a taxpayer does not take possession of a deposited amount because that is not the case here and, therefore, to the extent that these amounts exceed his basis in the land, plaintiff is taxable in the year of receipt.
Both for the above reasons and for those stated in the per curiam opinion, it is my opinion that plaintiff is not entitled to recover on his claim for refund.
DURFEE and DAVIS, JJ., join in the foregoing concurring opinion.. See G.C.M. 23698, 1943 Cum.Bull., 340, 341, where it is stated:
“If the condemnation proceeding does not include an assessment against the retained portion of the property, * * * any amount awarded as severance damages to the retained portion of the property is to be deducted from that part of tile basis of the whole property which is properly allocable to the retained portion and, if in excess thereof, the amount of the excess constitutes taxable gain.”