Tax Legal Services · Primary-source case analysis

Healy: Salary Received Under a Claim of Right Was Income Despite a Later Repayment

By Aneeta Mishra and Timothy Chan

Published September 6, 2026

Healy v. Commissioner concerned officers who received salaries, reported them as income, and later repaid amounts as transferees after the corporation incurred an excess-profits-tax deficiency.

The salaries were received and controlled without restriction

The officers treated the payments as their own and reported them, although the amounts later contributed to the corporation’s tax difficulty.

Later liability did not rewrite the receipt year

The subsequent transferee assessment and repayment did not prevent the original compensation from being income under the claim-of-right doctrine.

The repayment belonged to the later year

The Court treated the later payment according to the deduction rules applicable when it was made rather than reopening the earlier income year.

The Tax Court judgment was affirmed

The Court sustained inclusion in the receipt year. Current treatment also requires review of section 1341 and other later-enacted provisions.

Key takeaways

• Trace receipt, control, repayment, and assessment dates by tax year.
• Determine whether funds were received without restriction.
• Analyze the later-year deduction and section 1341 separately.
• Preserve corporate resolutions, returns, and transferee-liability records.