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Settlement Between Petitioner and Burke’s Estate
Early in 1988, respondent became aware of the inconsistency
between the estate’s and INI’s treatment of the payments that INI
had made to the estate. The IRS contacted Thorpe regarding the
estate’s failure to file Federal income tax returns for the
$100,000 “bonus” from INI. Scanlon-Hull had never seen a Form
1099 for any of the bonus payments. Petitioner had previously
told Thorpe that the taxable estate was going to be less than
$300,000, so that a Form 706 would not be required. Thorpe told
petitioner that the IRS was asking Burke's estate to file an
income tax return reporting $100,000 of income from INI. In a
letter dated February 25, 1988, petitioner urged Thorpe not to
file any tax returns until petitioner had had the opportunity to
review and discuss them with him to ensure consistency with INI's
treatment of the payments.
Around February 1988, Thorpe retained Laurel Peterson
(Peterson) and Rodney Kleedehn (Kleedehn) as new counsel for
Burke’s estate. In May 1988, petitioner met with Peterson,
Kleedehn, and Scanlon-Hull to discuss a settlement between
petitioner and the estate. During the settlement negotiations,
petitioner urged Thorpe to file an income tax return for the
estate declaring bonus income from INI. Petitioner offered to
pay the estate's income tax liability attributable to reporting
the payment received from INI as a bonus. Thorpe and the estate
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