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income tax consequences of the qui tam payment he received.
Petitioner’s request was assigned to Sheldon Iskow (Iskow). In
August 1997, Iskow told petitioner that there were no court cases
holding that qui tam payments are includable in gross income.
Iskow also told petitioner that he believed a qui tam payment is
taxable because it is analogous to a reward, and that the IRS
would rule that the qui tam payment was taxable unless petitioner
provided legal authorities for his position or withdrew his
request for a ruling. Petitioner withdrew the letter ruling
request.
E. Petitioner’s 1997 Tax Returns
Petitioner made no estimated tax payments to the United
States in 1997 relating to the qui tam payment, but he did make
an estimated tax payment of $80,500 to the State of New York.
Mrs. Roco helped petitioner prepare and file his Form 1040,
Individual Income Tax Return, for 1997. Petitioner did not
report the qui tam payment on his State and Federal returns for
1997.
Petitioner and Mrs. Roco filed joint Federal returns for
1995, 1996, 1998, 2000, and 2001, but they filed separate returns
for 1997. They expected respondent to discover that petitioner
had not reported the $1,568,087 payment by matching the Form
1099-MISC with his 1997 return, and that respondent would decide
to audit petitioner’s 1997 return. Mrs. Roco believed she might
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