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Of this amount, petitioner paid $300,000 to the attorneys
handling the lawsuit against PepsiCo.
In preparing his 1990 Federal income tax return, petitioner
allocated the $3,250,071 payment between two amounts. Petitioner
treated $1,969,7404 as the amount received for his shares of PMI
and $1,280,331 as the amount received in exchange for the release
of his claims against PepsiCo and Pizza Hut.
Petitioner's C.P.A., Wayne Hoover, advised petitioner in
connection with the preparation of petitioner's 1990 Federal
income tax return that the $1,280,331 was excludable from income
under section 104(a)(2) as damages received on account of per-
sonal injuries. Petitioner did not report this amount as income
on his 1990 Federal income tax return. Petitioner claimed on his
return a basis of $1,469,309 in his PMI stock, consisting of the
following:
Original basis $200,000
Miscellaneous expenses 100,000
Received from children 1 61,875
Travel expenses 5,797
Misc. legal fees 1,637
Legal fees paid 300,000
Contingent legal fees 2 800,000
Total 1,469,309
1 Petitioner, in his 1990 Federal income tax
return, reduced his gain by $61,875, which represents
the amount received which is attributable to his wife's
and children's stock. Respondent concedes that this
amount is not taxable to petitioner.
4Petitioner's allocation comports to the $5 per share book
value reflected in the 1990 financial statements of PMI.
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