Tax Court in Brief | Tunkl v. Comm’r | Gross Income, Customer Deposits, and True Loans

Tunkl v. Commissioner, T.C. Memo. 2026-83 | September 10, 2026 | Landy, J. | Docket No. 3990-25

Short Summary

The taxpayer worked as an art broker for more than 45 years and was the sole shareholder of Ganymede International, Inc., an S corporation through which he ran his business. He completed 13 transactions with Robert Mnuchin’s New York gallery, worth between $100 and $200 million, and most were not documented. In late 2017, Tunkl brought Mnuchin into a deal to buy Picasso’s Man with Ice Cream Cone for $18.5 million and resell it to a Swiss buyer. Mnuchin would contribute $16.5 million, Tunkl $2 million, and the two would recover their investments and split the profits. Nothing was reduced to writing.

The gallery wired $16.5 million to Ganymede on January 11, 2018. Five days later, Ganymede wired $17.4 million to a Swiss account to make the second installment on a Francis Bacon painting it had separately agreed to buy for $21.85 million, a payment that had to be made or the $4.4 million already paid would be forfeited as liquidated damages. The Picasso deal died in the spring. On June 14, 2018, Mnuchin’s lawyers presented Tunkl with an agreement and a demand note acknowledging $44 million in debt. Tunkl has since paid $2.5 million.

Ganymede reported an ordinary business loss of $1,696,516 for 2018 and didn’t report the $16.5 million anywhere. The IRS determined a $5,142,307 deficiency. The Court sustained it.

Key Issues

Whether the $16.5 million Ganymede received is gross income to Tunkl as its sole shareholder under section 61(a), or instead a nontaxable customer deposit or the proceeds of a true loan.

Primary Holdings

The $16.5 million is gross income. Tunkl had dominion and control over the funds when they arrived, used them at will, and derived economic benefit from them. It was not a customer deposit, because Mnuchin was a co-investor rather than a customer and no obligation to repay existed when the money was wired. It was not a loan, because the transaction bore none of the indicia of one at the time of transfer.

Key Points of Law

Gross income reaches all income from whatever source derived unless excluded by law. Section 61(a); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429–31 (1955). A gain is taxable when the recipient has such control that, as a practical matter, he derives readily realizable economic value from it, and control exists when the taxpayer is free to use the funds at will. James v. United States, 366 U.S. 213, 219 (1961); Rutkin v. United States, 343 U.S. 130, 137 (1952).

In an unreported income case, the Commissioner must first lay some evidentiary foundation connecting the taxpayer to the income-producing activity. Weimerskirch v. Commissioner, 596 F.2d 358, 361–62 (9th Cir. 1979). A stipulated bank deposit did that here, after which the burden returned to the taxpayer. Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999).

Advance payments are includible in the year received; deposits are not. Whether a receipt is one or the other depends on the parties’ relationship at the time of the deposit, with attention to the recipient’s obligation to repay and his ability to keep the money. Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203, 209, 212 (1990); Oak Industries, Inc. v. Commissioner, 96 T.C. 559, 563–64, 567–68 (1991).

But a true loan requires, when the funds are transferred, an unconditional obligation on the transferee to repay and an unconditional intention on the transferor to secure repayment. Haag v. Commissioner, 88 T.C. 604, 615–16 (1987). A conditional obligation to repay doesn’t make a loan. Taylor v. Commissioner, 27 T.C. 361, 368–69 (1956). The Ninth Circuit weighs a note or instrument, interest, a fixed repayment schedule, collateral, actual repayments, a reasonable prospect of repayment, and whether the parties behaved as though the transaction were a loan. Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir. 2000).

Insight

The opinion is a clinic on why the moment of transfer governs. Tunkl and Mnuchin had a real economic understanding in January 2018, and it concerned sharing profits, not repaying principal. Every document pointing toward repayment came after: the invoice created in May and backdated to January, the June agreement, the demand note, the December addendum splitting the note into four. Backdating an invoice is no way to prove what the parties intended five months earlier. The Court described Tunkl’s supporting testimony as unreliable, unsupported, and thoroughly unconvincing, and where the taxpayer carries the burden, that description is usually the end of the matter.

As the Court reasoned, Tunkl still has the money. He has paid $2.5 million against $44 million; the $16.5 million piece was severed into its own note; he offered no evidence that the $2.5 million went against that note; and the gallery has never sued to collect despite an express right to do so after December 31, 2018. A receipt you are free to spend and have never been made to return looks like income no matter what the later paper calls it.

There’s a lesson for counsel in footnote 3. The Court observed that the arrangement resembled a joint venture, laid out the Luna factors and the subchapter K question, and then declined to reach any of it because neither party argued the point at trial or on brief. An argument nobody makes is an argument the Court treats as conceded. Whether subchapter K would have produced a better answer for Tunkl is now unknown. Taxpayers facing a similar determination should read our discussion of the notice of deficiency and of handling an IRS audit, and our profile of Glenshaw Glass for the doctrine that starts it all.

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The information in this article is for general educational purposes only and is not legal advice. Reading it does not create an attorney-client relationship with Freeman Law. Every matter turns on its own facts, and you should consult a qualified tax attorney about your circumstances.