Van Cleave v. United States

Van Cleave (plaintiff), a corporate officer bound by a by-law and separate personal agreement to return any portion of his salary later deemed excessive (and thus non-deductible) by the IRS, reported his full 1974 salary as income that year; a 1975 IRS determination found $57,500 excessive, and Van Cleave repaid that amount to the corporation as required. On his 1975 return, he invoked § 1341 to effectively exclude the $57,500 from his 1974 income and apply the resulting tax reduction as a credit; the government argued § 1341 was unavailable because Van Cleave had more than a mere appearance of an unrestricted right to the income in 1974, and the district court agreed.