The Income Tax
The federal government is the largest employer in the U.S., and provides the greatest number and variety of services and products in the country. To fund its operation – i.e., to pay its bills – the government needs a substantial and steady stream of revenue.[i]
Long ago, it was determined that an income tax – one that would shift resources from private individuals and businesses to the government – would provide a large and dependable source of revenue.
Gross Income – Construed Broadly
In order to maximize the amount of income tax collected, Congress defined a taxpayer’s “gross income” to mean all income of the taxpayer “from whatever source derived.”[ii] The Congress shall have power to lay and collect taxes on incomes, from whatever source derived
The IRS later clarified that regardless of the form in which income was realized[iii] by a taxpayer – whether as money, property, or services – it was still included in gross income.[iv]
Although the Code and the Regulations issued thereunder identify what have been described as the “more common items of gross income,” they do so only for purposes of illustration – the term “income” is not limited to the items so enumerated.[v]
Indeed, because of the importance of the income tax to the functioning of the federal government, the federal courts have long stated that the term “gross income” is to be construed broadly when determining a taxpayer’s income tax liability.[vi]
Deductions – Narrow Construction
Of course, the federal income tax is imposed upon a taxpayer’s “taxable income,”[vii] which is determined by subtracting from the taxpayer’s gross income those deductions allowed under the Code.[viii]
In contrast to the expansive approach applied to the meaning of the term “gross income,” it is a well settled principle of law that deductions are “a matter of legislative grace”[ix] and must be narrowly construed – the taxpayer may not claim a deduction with respect to an expenditure unless it is specifically allowed under the Code.[x]
The same rationale that requires a narrow construction of the deductions that may be claimed by a taxpayer also requires that exclusions from gross income are to be narrowly construed.[xi]
The Meaning of “Income”
Unfortunately, neither the Code nor the Regulations provide a core meaning for the term “income,” and there is no set of codified standards for identifying an item of income for purposes of the federal income tax.
From a practical perspective, this definitional gap has not presented a serious impediment to the administration of the federal income tax. There is a reason, after all, that the more “common” items of gross income are referred to as such by the Regulations.
The Courts
There have been occasions, however, on which the U.S. Supreme Court has had to consider the scope of the term “income”; for example, where a taxpayer and the IRS disagree over the nature of the transaction in question or over the parties’ intent in entering the transaction.
In those instances, the Court has most often defined income as an “accession to wealth.”[xii] Thus, a seller of property realizes an accession to their wealth when they sell appreciated property in a taxable exchange;[xiii] a service provider when they sell their services[xiv] for cash or property; a property owner when they collect interest, rent or royalties for the use of their property.
Other Courts and the IRS have since used the concept of an “accession” to a taxpayer’s wealth[xv] as the starting point for determining whether the taxpayer has realized income from a particular transaction.
Below, we’ll review a recent decision of the U.S. Tax Court in which the taxpayer and the IRS disagreed over the tax treatment of money that was transferred to the taxpayer by someone with whom the taxpayer had previously done business.[xvi]
Income, Deposit, or Loan?
Taxpayer was an art broker who represented buyers and sellers in various transactions. During the year in issue, Taxpayer was the sole shareholder of Corp, a subchapter S corporation, but he did business informally as Taxpayer Fine Art (“TFA”). While invoices and documents bore the TFA name, there was no bank account with this name; instead, all money received by the business went into Corp’s bank account. Taxpayer used Corp’s account for both business and personal expenses.[xvii]
Taxpayer had a business relationship with Gallery, an unrelated art gallery organized as an LLC. Taxpayer would purchase artworks for Gallery (often at a low price), which were later resold for a substantial profit. Before the year in issue, Taxpayer had participated in 13 transactions with Gallery, totaling more than $100 million.[xviii] Given their relationship and industry practice, Taxpayer and Gallery rarely executed written agreements for their business deals.
The Painting
Taxpayer discussed purchasing a Picasso-Painting from a third-party art dealer. Taxpayer believed he could purchase the Picasso-Painting for $18.5 million and then resell it for a substantial profit because he had found an interested foreign buyer willing to pay a high price for it.
Taxpayer approached Gallery about participating in the acquisition of the painting because Taxpayer could not afford to purchase it himself. According to Taxpayer, Gallery never intended to purchase the Picasso-Painting for its own use, and both parties understood the transaction to be a joint venture designed to make a profit.
Gallery’s Investment
The parties agreed that Gallery would provide $16.5 million toward the purchase and Taxpayer would finance the remaining $2 million.
After purchasing the Picasso-Painting, Taxpayer would then either (i) sell the painting to the interested foreign buyer for $30.5 million, or (ii) sell the Picasso-Painting in exchange for another artwork (worth $13 million) plus $18.5 million. Taxpayer and Gallery would each be repaid their initial investments and then split profits 25% to Taxpayer and 75% to Gallery on the first $30 million and then in equal shares on any additional profits.
The parties did not execute any contract or otherwise memorialize the terms of this arrangement at the time of the transaction. While it was understood Taxpayer would use the funds to consummate the deal, Gallery did not place any specific restrictions on Taxpayer’s use of the $16.5 million at the time the money was transferred to Corp.
In accordance with the parties’ oral agreement, Gallery sent the $16.5 million to Corp via electronic transfer to its bank account. A few months later, Taxpayer invoiced Gallery for the $16.5 million. At Gallery’s insistence, the invoice was backdated to the date of the transfer to Corp’s account.
Beyond Picasso?
While Taxpayer was negotiating the Picasso-Painting deal, he was also working on purchasing a contemporary painting and a Bacon-Painting. Taxpayer had planned to sell the contemporary painting for $250 million, which would have resulted in a substantial commission for Taxpayer. However, the deal failed to close.
Taxpayer had earlier signed an agreement to purchase the Bacon-Painting from a foreign seller for $21.85 million. Under the terms of that agreement, Corp was required to make a first payment to the seller of $4.4 million and, one year later, a second payment, of $17.45 million. The second payment coincided with Gallery’s transfer of its $16.5 million to Taxpayer for the acquisition of the Picasso-Painting. If Corp failed to timely make the second payment, the agreement with the foreign seller would terminate and the latter would keep Taxpayer’s first payment of $4.4 million as liquidated damages.
Corp timely wired $17.4 million from its bank account to complete the Bacon-Painting deal. Because Gallery had not placed any restrictions on the $16.5 million, Corp felt comfortable using those funds to satisfy the second payment because he thought he could earn a sufficient commission on the subsequent sales of the contemporary painting[xix] and of the Bacon-Painting to repay Gallery if the Picasso-Painting deal fell through.[xx] Without Gallery’s funds, neither Corp nor Taxpayer could have completed the Bacon-Painting transaction and would have been liable for $4.4 million in liquidated damages.
To Hell in a Handbasket
A couple of months later, Taxpayer learned that the owner of the Picasso-Painting was no longer interested in selling. Taxpayer informed Gallery of this development and explained that he lacked the funds to repay Gallery, having applied them toward the acquisition of the Bacon-Painting.
At that point, Gallery presented Taxpayer with an Agreement stating that Taxpayer and TFA were indebted to Gallery for a total of $44 million. The Agreement listed six paintings, including the Picasso-Painting, which Gallery had engaged Taxpayer to sell or purchase. Taxpayer had failed to satisfy his obligations relating to these six paintings.
The Agreement further provided that “any and all opportunities presented to [Taxpayer] or otherwise identified by [Taxpayer] to purchase artwork from third parties [would] be offered first to [Gallery].” If Gallery accepted an opportunity to purchase a piece of art from a third party, Taxpayer was required to “facilitate the transaction and work to ensure that the transaction [was] successfully consummated.” Taxpayer’s negotiated fee pursuant to the Agreement was 10%, with the remaining 90% reserved for Gallery in partial satisfaction of the outstanding debt. The Agreement did not include the parties’ previously agreed-upon terms regarding the Picasso-Painting transaction. Finally, if Taxpayer failed to meet his obligations under the Agreement, Gallery could commence a civil action to recover the debt owed by Taxpayer.
Attached to the Agreement was a Note. In executing and signing the Note, Taxpayer promised to pay Gallery the outstanding $44 million, “on demand without interest.” The Note further provided that the $44 million “shall become immediately due and payable upon notice to [Taxpayer].” Lastly, the Agreement was binding and enforceable “until the Note [had] been satisfied in full.” The Note did not state any repayment schedule or terms, interest, or loan maturity date. Taxpayer signed both the Agreement and the Note.
In a later Addendum, Taxpayer and Gallery agreed to amend the Agreement because “no payments [had] been made by [Taxpayer] toward satisfaction of the indebtedness.” The Addendum broke the original Note down into four smaller notes, although the total amount Taxpayer owed remained the same. Despite this Addendum, Taxpayer failed to make substantial payments on any of the four notes. In a subsequent agreement, Taxpayer agreed to transfer and assign to Gallery 80% of his equity interest in a foreign company in partial satisfaction of his $44 million debt. The total value of the interest was $2.5 million, which is the only amount Taxpayer ever paid Gallery to satisfy the outstanding debt.
The Audit
CPA prepared and filed Corp’s and Taxpayer’s federal income tax returns[xxi] for the year in issue. Corp’s S Corporation return reported an ordinary business loss of approximately $1.7 million, but did not report the $16.5 million received from Gallery. Taxpayer, as Corp’s sole shareholder, reported the entire amount of Corp’s ordinary business loss on his return.
The IRS examined Taxpayer’s return and determined that Taxpayer had failed to report all the income received by Corp during the year in issue. The IRS sent Taxpayer a Notice of Deficiency asserting an income tax deficiency in excess of $5 million for the year in issue.
Taxpayer timely[xxii] filed a Petition with the Tax Court.
Tax Court
The sole issue for decision before the Court was whether Taxpayer received and failed to report $16.5 million in income as the sole shareholder of Corp.[xxiii]
Was the $16.5 Million Gross Income?
Gross income includes all income from whatever source derived, unless excluded by law.[xxiv]
According to the Court, a recipient of funds has taxable income when the recipient has such control over the funds that, as a practical matter, the recipient “derives readily realizable economic value from it.” A taxpayer has dominion and control over any funds so received, the Court continued, when the taxpayer is free to use the funds at will.
During the year in issue, Corp received $16.5 million from Gallery as part of the Picasso-Painting deal. As a cash method taxpayer, Taxpayer was required to include this amount in Corp’s gross income unless the receipt was nontaxable.[xxv]
Taxpayer’s Dominion and Control
Taxpayer did not deny that Corp received the $16.5 million from Gallery during the year in issue, and further testified that Gallery placed no restrictions on his or Corp’s use of the funds.
In fact, as we saw above, Taxpayer used the $16.5 million at will, and derived economic benefit from it, because he was unable to purchase the Bacon-Painting without those funds.
As a result, the IRS asserted that the $16.5 million was taxable income to Taxpayer, as Corp’s sole shareholder, unless an exclusion applied.
Taxpayer advanced two arguments for why the $16.5 million was not included in his gross income.
A $16.5 Million Deposit?
Taxpayer first contended that the $16.5 million was a customer deposit from Gallery and, thus, was not included in gross income; a deposit is not income to the recipient thereof.
The IRS, however, disagreed and maintained that the $16.5 million was a taxable advance payment. “Advance payments of income are includable in gross income in the year the advance payment is received.”
Whether customer deposits are the economic equivalents of advance payments, and therefore taxable upon receipt, must be determined by examining the relationship between the parties at the time of the deposit.[xxvi]
The Court stated that among the factors to be considered in making this determination is the taxpayer’s obligation to repay the money – “a deposit acquired subject to an express obligation to repay is not within the complete dominion of the recipient” – or, alternatively, the taxpayer’s ability to keep the money.
Taxpayer and Gallery, given their prior successful dealings, did not memorialize in writing anything relating to the Picasso-Painting deal before or at the time the money was transferred by Gallery. As a result, the only evidence in discerning the parties’ rights and obligations at the time the funds were transferred was Taxpayer’s testimony, the email correspondence between the parties laying out the agreed-upon profit split arrangement, and documents created months after the transfer was made.
The Court Rejects Treatment as a Deposit
The Court found that this “sparse evidence” fell “woefully short of supporting” Taxpayer’s contention that the $16.5 million was a customer deposit.
First, the relationship between Taxpayer and Gallery at the time the funds were transferred demonstrated that Gallery was Taxpayer’s joint investor and partner in the Picasso-Painting deal, not his customer. The parties had engaged in other deals together where Taxpayer sold paintings on behalf of Gallery for a profit and earned a commission. Notably, Taxpayer was not being paid a commission by Gallery to act as broker in the Picasso-Painting deal. The intent was always to acquire the Picasso-Painting using funds from both parties, and to resell it for a profit. At the time of resale, each investor would be repaid its investment and then they would split the excess profits. Thus, Taxpayer did not provide a service to Gallery, and at no point was Taxpayer going to sell the Picasso-Painting to Gallery.
Next, Taxpayer’s obligation to repay Gallery did not arise at the time the $16.5 million was transferred to Corp’s bank account. While Taxpayer testified that he had an obligation to repay Gallery from the start, in support of this contention Taxpayer offered “merely his testimony, which was unreliable, unsupported, and thoroughly unconvincing.”
The Court noted that, to the contrary, the documentary evidence provided to the Court (i.e., the backdated invoice, the Agreement, and the Note) demonstrated that Taxpayer’s obligation to repay the $16.5 million did not arise until months after the transfer, when the deal fell through. The parties’ business relationship supported this conclusion as well because at the time the funds were transferred, Gallery “had only enjoyed a prosperous business relationship with” Taxpayer,[xxvii] and Taxpayer had “reassured [G]allery that the deal was close to consummating.”
Furthermore, the Court observed, neither the invoice, which was created and backdated at Gallery’s insistence, nor any of the correspondence between the parties, contained any mention of repayment. Taxpayer testified that he had assumed Gallery wanted the backdated invoice because “[Gallery] needed it for his records because . . . he realized that there was no documentation . . . when he sent me out the money and he needed that for whatever financial accounting or tax stuff he needed it for.” The Court added that, if there had always been a duty to repay, presumably Gallery would have included that obligation in the terms of their understanding when they were finally reduced to writing, especially if he needed it for accounting or tax purposes.
Finally, the Court stated, Taxpayer was permitted to keep the entire amount he received from Gallery. Taxpayer repaid only $2.5 million of the total $44 million owed to Gallery. Pursuant to the Addendum, the $16.5 million owed from the Picasso-Painting deal was severed from the Note into its own smaller note. Taxpayer provided no evidence demonstrating that the $2.5 million was partial repayment of this smaller note.
Therefore, Taxpayer failed to demonstrate that he was not permitted to keep the entire $16.5 million. Furthermore, the Agreement permitted Gallery to pursue a civil action to recover the debt owed by Taxpayer if Taxpayer failed to make payments or otherwise violated its terms. Given the foregoing, Taxpayer failed to prove that the $16.5 million was a nontaxable customer deposit.
Was the $16.5 Million a Loan? Nope
Alternatively, Taxpayer contended that the $16.5 million was nontaxable loan proceeds.
A loan is “an agreement, either express or implied, whereby one person advances money to the other and the other agrees to repay it upon such terms as to time and rate of interest, or without interest, as the parties may agree.”
Because a genuine loan is accompanied by an obligation to repay, loan proceeds do not constitute income to the taxpayer. “For disbursements to constitute true loans there must have been, at the time the funds were transferred, an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment.” In other words, “[a] valid loan does not exist where there is a conditional obligation to repay.”
The Court applied the following multifactor test[xxviii] to determine whether the transaction was a “true loan”: (1) whether the promise to repay was evidenced by a note or other instrument; (2) whether interest was charged; (3) whether a fixed schedule for repayments was established; (4) whether collateral was given to secure payment; (5) whether repayments were made; (6) whether the borrower had a reasonable prospect of repaying the loan and whether the lender had sufficient funds to advance the loan; and (7) whether the parties conducted themselves as if the transaction were a loan.
The Court concluded that the $16.5 million Gallery transferred to Corp was not a loan for federal tax purposes because the terms of the unsettled transaction bore no indicia of a loan.
First and foremost, no formal obligation to repay existed on the day the funds were transferred to Corp. To the contrary, the obligation to repay Gallery did not arise until several months later, on the day Taxpayer signed the Agreement. Neither the backdated invoice nor the Agreement contained any information regarding a schedule of repayment, interest, or collateral. In fact, the Note was the first written documentation demonstrating that Gallery intended to recover the $16.5 million from Taxpayer. The Note explicitly stated that Taxpayer must repay this amount to Gallery “on demand without interest.” Likewise, the Note contained no schedule of repayment, providing instead that the entire liability “shall become immediately due and payable upon notice to [Taxpayer].” Nothing in the Agreement or the Note indicated that Gallery required Taxpayer or Corp to put up any collateral to secure repayment. Finally, Taxpayer repaid only $2.5 million of the total $44 million that Gallery asserted was owed to it by Taxpayer.
In addition, the parties did not conduct the transaction as if it was a loan. When Gallery transferred the funds as a joint investor in the Picasso-Painting deal, there was no expectation that Taxpayer would repay the funds. Rather, Gallery expected to recoup its investment by receiving a share of the profits from a subsequent resale of the Picasso-Painting. Gallery’s understanding of the transaction was evidenced by the email correspondence from Taxpayer to Gallery, which detailed the status of the deal and the profit split arrangement between the parties.
In sum, the Court found that nothing in the transaction demonstrated the $16.5 million was a loan from Gallery to Taxpayer. Accordingly, the Court rejected Taxpayer’s contention.
Because Taxpayer failed to prove that the $16.5 million he received, and kept, from Gallery was not includible in,[xxix] or was excluded from,[xxx] gross income, the Court sustained the IRS’s determination in the Notice that the $16.5 million received by Corp was income that should have been reported by Taxpayer on his individual income tax return for the year in issue.
Observations
There is no denying that Taxpayer experienced some unfortunate setbacks as some of the deals he had been negotiating collapsed within a relatively short period. To make matters worse, he diverted for his own benefit[xxxi] the funds that Gallery had “entrusted” to him for another purpose.
Control?
Notwithstanding the diverted funds had already been committed to another transaction pursuant to an oral agreement with Gallery,[xxxii] and despite the understanding between the parties that the funds would be returned to Gallery if such transaction failed to materialize,[xxxiii] the Court determined that Taxpayer had “full control” over the disposition of such funds.
Would the Court’s finding of control have rested on firmer ground if it had been based on Taxpayer’s “quasi-misappropriation” of Gallery’s funds? The fact that the accession to wealth in the hands of Taxpayer was attributable to such behavior would not have changed the outcome.
Something Else?
The Court dismissed the argument that Taxpayer was “obligated” to return the funds to Gallery; it was right to do so insofar as the Court rejected the suggestion that Gallery had made a loan to Taxpayer. There was no understanding on Gallery’s part that Taxpayer would use the funds for Taxpayer’s own account.
However, under the circumstances, could Gallery have demanded the return of its funds before Taxpayer had reasonably relied upon their availability to incur costs related to the Picasso-painting? I think so.
Would it have been more accurate to have characterized Taxpayer’s relationship to Gallery and its funds as that of an agent or custodian? I think so.
Although the accession to wealth standard is properly used to determine a taxpayer’s realization of income, the outcome for purposes of the federal income tax will depend upon the proper characterization of the taxpayer’s relationship to the parties and properties in question.
The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.
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[i] Unfortunately, it has also required a great deal of borrowing. In FY 2025, the federal government spent $7.01 trillion and collected $5.23 trillion in revenue, resulting in a deficit. The amount by which spending exceeded revenue, $1.78 trillion in FY 2025, was funded with debt. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/.
Income taxes account for most of the revenue collected by the government; they support a variety of programs.
Unlike income taxes, Social Security and Medicare taxes are used only for those programs.
[ii] IRC Sec. 61(a).
[iii] When does an individual taxpayer “realize” income? If an individual receives consideration for services rendered (such as wages) or for the use of their property (for example, rent or interest or royalties), they have realized income.
When an individual taxpayer sells or exchanges their property, they realize gain to the extent the consideration received exceeds the individual’s adjusted basis for their property. The individual also realizes income when they receive a return on the investment of their property or capital; for example, in the form of a dividend or other distribution. We’ll return to this concept.
During the last Administration, many legislators clamored for the imposition of an annual wealth tax on the appreciated value of property. This raised the question whether a realization event was necessary before such appreciation could taxed.
The U.S. Supreme Court had an opportunity to consider the issue, but elected not to do so. See https://www.taxslaw.com/2023/10/supreme-court-to-decide-no-realization-means-no-moore-income-tax/#_ednref40 and https://www.taxslaw.com/2024/07/the-supreme-courts-non-opinion-on-the-realization-of-income-a-lost-opportunity/.
[iv] Reg. Sec. 1.61-1. Thus, grossincome means all items of income that an individual receives, whether actually or constructively, in the form of money, property and services.
[v] IRC Sec. 61; Reg. Sec. 1.61-1.
[vi] See, e.g., Comm’r v. Glenshaw Glass Co., 348 U.S. 426 (1955).
Notwithstanding that the term “gross income” is broadly defined, and has been broadly construed by the Courts, over time Congress has, for various policy reasons, statutorily carved out several exceptions and exclusions from the term’s otherwise expansive definition. See, e.g., IRC Sec. 108, which under certain conditions, excludes from a taxpayer’s gross income all, or a portion, of the amount of otherwise includible income attributable to the discharge of the taxpayer’s indebtedness. See also Reg. Sec. 1.1001-2.
[vii] IRC Sec. 1.
[viii] IRC Sec. 63.
[ix] There is no Constitutional right to reduce one’s income by any costs paid or incurred. In fact, the Sixteenth Amendment merely states that “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived . . .”
Instead, deductions are usually allowed by Congress to encourage certain expenditures or behaviors that are expected to have positive economic effects.
[x] See, e.g., INDOPCO, Inc. v. Comm’r, 503 U.S. 79 (1992).
[xi] See Comm’r v. Schleier, 515 U.S. 323 (1995).
[xii] Comm’r v. Glenshaw Glass, 348 U.S. 426 (1955). Of course, the item in question is not included in gross income if it is explicitly excluded by statute.
[xiii] For example, for money or property that is not of like kind.
[xiv] Which represent potential value until they are rendered to another.
[xv] The phrase “accretion in value” is also sometimes used to described the concept.
[xvi] Tunkl v. Commissioner, T.C. Memo 2026-83 (filed September 10, 2026).
[xvii] Of course he did.
[xviii] Perhaps as much as $200 million.
[xix] Which, as noted earlier, fell through. The Court’s opinion does not mention the fate of the Bacon-Painting.
[xx] From this, it may be said that Taxpayer was aware of an obligation to return Gallery’s funds if their deal collapsed.
[xxi] On Form 1120S for Corp and on Form 1040 for Taxpayer.
[xxii] Regardless of where the Circuit Courts are headed with equitable tolling, prudent taxpayers should respect the 90-day window. See IRC Sec. 6213.
[xxiii] The IRS’s determination set forth in a Notice of Deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is in error. Tax Court Rule 142(a)(1). In cases of unreported income, however, the IRS must first establish “some evidentiary foundation” connecting the taxpayer with the income-producing activity, or otherwise demonstrate that the taxpayer received unreported income. Once the IRS meets this threshold requirement, the burden shifts to the taxpayer, who must establish by a preponderance of the evidence that the deficiency determination was erroneous.
The IRS met this threshold burden in the present case. The parties stipulated that Corp maintained a bank account and that it received the $16.5 million deposited to this bank account from Gallery. Taxpayer, as the sole shareholder of Corp (an S corporation), in turn received any flowthrough business income or losses. IRC Sec. 1366. Accordingly, the burden rested with Taxpayer to establish that the $16.5 million was not income to him and that the IRS’s determination was erroneous.
[xxiv] IRC Sec. 61(a); Reg. Sec. 1.61-1(a).
[xxv] Reg. Sec. 1.451-1(a).
[xxvi] Citing Comm’r v. Indianapolis Power & Light Co., 493 U.S. 203 (1990).
[xxvii] How is this relevant?
[xxviii] The Court explained that because Taxpayer’s case was appealable to the Ninth Circuit Court of Appeals, it would follow the precedent of that circuit court, under which these factors were employed. See Golsen v. Comm’r, 54 T.C. 742 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).
[xxix] By virtue of its nature; for example, loan proceeds.
[xxx] By statute; for example, debt forgiveness in bankruptcy. See IRC Sec. 108.
[xxxi] I.e., to avoid the liquidated damages that would have resulted from one of these deals.
[xxxii] Which itself almost certainly rested on the history of business dealings between Taxpayer and Gallery.
[xxxiii] A fact that Taxpayer conceded when he testified that he felt comfortable using Gallery’s funds to satisfy the second payment owed on the Bacon-Painting because he thought he could earn a sufficient commission on the subsequent sales of that painting and one other to repay Gallery if the Picasso-Painting deal fell through.