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grounds that related to his employment as counterclaims
against Prudential, including breach of contract, breach of the
covenant of good faith and fair employment, fraud, negligent
misrepresentation in petitioner’s hiring, and punitive damages.
During 1990, the arbitration proceeding was settled. Under the
settlement, Prudential released petitioner from his obligation to
repay the $325,000 loan balance, and petitioner agreed to drop
his employment-related claims. Petitioner’s attorney wrote
petitioner a letter stating that the $325,000 would be
reclassified by Prudential as punitive damages, but the attorney
did not provide any tax advice regarding this item.
Prudential, in connection with the settlement and release of
the loan obligation, issued petitioner a Form 1099 MISC,
Miscellaneous Income, for 1990 reflecting $325,000 as nonemployee
compensation to petitioner. Petitioner did not report the
settlement as income.
During 1987, while petitioner’s dispute with Prudential was
ongoing, he transferred his interests in the JAC Ranch and the
Newport Beach residence to Mrs. Corrigan. Mrs. Corrigan quit-
claimed the deeds for both properties back to petitioner once
the Prudential matter was settled. At all pertinent times,
petitioner was the sole mortgagee and the only person obligated
to make mortgage payments with respect to the mortgage on the JAC
Ranch property.
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Last modified: May 25, 2011