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totaling $1,071 and $1,270, in the respective years. Unless
otherwise indicated, section references are to the Internal
Revenue Code in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
The issues for decision are, with respect to each year in
issue: (1) Whether certain damages received by petitioners from
a lawsuit are fully includable in gross income; (2) whether
Southern Financial Investment Services, Inc., an S corporation
wholly owned by petitioner husband, operated a trade or business
within the meaning of section 162 or conducted an activity not
engaged in for profit within the meaning of section 183; and (3)
whether petitioners are liable for the accuracy-related penalties
under section 6662(a).
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Jacksonville, Florida, on the date the petition was filed in this
case.
Lawsuit Proceeds
Background
In 1987, petitioner husband (petitioner) filed suit in the
United States District Court, Eastern District of Texas, against
his former employer, Leveretts Chapel Independent School District
(the district), and the individual school board members (the
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