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Additions to Tax
Petitioner Deficiency Sec. 6662(a)
Dennis A. & Tai K. Praegitzer1 $33,425 $6,685
Kathleen M. Dawes 37,293 7,458
All section references are to the Internal Revenue Code in
effect for the year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
Petitioner Praegitzer and petitioner Dawes are former
spouses. Prior to and during their marriage, Mr. Praegitzer and
Ms. Dawes, along with Ms. Dawes' brother, owned a corporation
(Ameritech). Incident to Mr. Praegitzer's and Ms. Dawes'
divorce, Ameritech spun off one of its businesses (the 303
products business) to petitioner Praegitzer. This business
became petitioner Praegitzer's wholly owned corporation (303
Products, Inc., hereinafter 303 Products). Respondent contends
that petitioner Praegitzer received dividend income from 303
Products when it distributed cash to, and forgave a debt owed it
by, petitioner Praegitzer.2 Petitioner Praegitzer argues that
the cash and relief from indebtedness were received incident to a
divorce and thus were tax free under section 1041. Respondent
alternatively argues that if petitioner Praegitzer is not taxable
1 Tai K. Praegitzer is a party to this action solely
because she filed a joint Federal income tax return with Dennis
A. Praegitzer for the taxable year 1990. Any reference to
petitioner Praegitzer herein is to Dennis A. Praegitzer.
2 Respondent further contends that this adjustment to
adjusted gross income reduces the amount of medical deductions
that Praegitzer was entitled to claim. This is a computational
matter that will be addressed, if necessary, under Rule 155.
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Last modified: May 25, 2011