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decision are (1) whether $266,6861 received by William J. Mason
(hereinafter, petitioner) in connection with a settlement of a
lawsuit should be excluded from gross income pursuant to section
104(a)(2); and (2) whether petitioners are liable for an
accuracy-related penalty pursuant to section 6662(a).2
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
their petition, petitioners resided in Houston, Texas.
From 1977 to 1985, petitioner was a manager of various movie
theaters. Towards the end of that period, petitioner met an
individual involved in radio broadcasting. After this encounter,
petitioner became interested in purchasing and upgrading a radio
station.
1 The record reflects that this amount comprises settlement
proceeds of $550,000 net of attorney’s fees and litigation
expenses. In the notice of deficiency, respondent’s
determination did not include in income the entire $550,000, only
the $266,686. At the end of the trial, pursuant to Rule 41(b),
respondent orally moved to amend the pleadings to conform to the
evidence (i.e., treating the settlement proceeds of $550,000 as
income and the attorney’s fees and litigation expenses as
miscellaneous itemized deductions) and increase the deficiency.
We denied respondent’s motion.
2 All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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