Diamond Claims & Investigation Services, Inc. - Page 40

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          proceeds of the Farmers lawsuit to DCI and to the Diamonds as the           
          owners of ETS:                                                              
                                        Amount         Amount                         
               Item                     Awarded        Awarded to                     
               Awarded                  to DCI          the Diamonds                  
               Punitive damages      $237,485          $53,230                        
               Attorneys' fees                                                        
               and costs           184,792         41,420                             
               Interest       145,311                  32,570                         
               Based on our review of the entire record in this case, we              
          find that, of the proceeds of the Farmers lawsuit that are at               
          issue (viz., $2,191,824), $1,790,536 was awarded to DCI and                 
          $401,288 was awarded to the Diamonds as the owners of ETS.                  
          Accordingly, only $1,790,536 of those proceeds is includible in             
          DCI's gross income for the year at issue.31                                 
               To reflect the foregoing and the concessions of the parties,           

                                             Decision will be entered                 
                                        under Rule 155.                               



          31  The remaining portion of such proceeds, or $401,288, is not             
          includible in DCI's gross income for the year at issue, and DCI             
          is not entitled to the deduction of $411,086 on which the parties           
          focus their arguments.  In this connection, petitioner concedes             
          on brief that, by allowing petitioner to deduct $39,159 of the              
          total deduction claimed in its return for the year at issue with            
          respect to the proceeds of the Farmers lawsuit, respondent did              
          not include in petitioner's taxable income for that year $39,159            
          of those proceeds that are at issue and that the District Court             
          awarded to the Diamonds as the owners of ETS.  Consequently, in             
          the Rule 155 computation, the parties shall take account of                 
          petitioner's concession so that the maximum amount of the pro-              
          ceeds of the Farmers lawsuit that are at issue and that are not             
          includible in the taxable income of DCI is $401,288.                        




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