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 · Updated October 17, 2026

Decision: Healy v. Comm’r, 345 U.S. 278 (1953).

Healy v. Commissioner asked whether officers could reopen the year they received salary after later being held responsible for their corporations’ unpaid taxes. They argued that a constructive trust meant they had never held the excess salary for themselves. The Supreme Court rejected that argument on April 6, 1953.

The salaries were received and controlled without restriction

The officers received and used the salaries as their own. A later finding that part of the compensation was excessive made them liable as transferees for corporate tax deficiencies. It did not mean they had originally received the money as trustees for someone else. Healy, 345 U.S. at 280–283.

Later liability did not rewrite the receipt year

A constructive trust imposed later did not change the officers’ earlier practical control of the money. A potential liability that might arise after an audit was not a restriction on use when the salary was received. Healy, 345 U.S. at 282–284.

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 consolidated appeals had different dispositions

Both results preserved inclusion in the receipt year: The Supreme Court affirmed the Second Circuit in the Healy case and reversed the Sixth Circuit in the companion Smith case. It did not affirm the Tax Court’s taxpayer-favorable approach. Section 1341 was enacted later and must be considered separately for a current repayment. Healy, 345 U.S. at 279, 285.

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.