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parties did not discuss the tax consequences of the settlement.
In addition, the agreement did not contain any reference to
prejudgment or postjudgment interest. On September 18, 1992, the
parties filed a stipulation of dismissal with the trial court.
The stipulation states: "The above-entitled action is hereby
dismissed, no interest, no costs." The settlement and
stipulation of dismissal voided any judgment previously entered
in the case. Dr. Glod's medical malpractice insurer issued an
$800,000 check to the Rozpads and their attorney. Their attorney
cashed the check; retained $361,112.87 for attorney's fees and
costs; and issued a $438,887.13 check to the Rozpads. Dr. Glod's
medical malpractice insurer did not issue a Form 1099, regarding
the $800,000 settlement, to either the Rozpads or the Internal
Revenue Service.
The Rozpads, on their 1992 Federal income tax return,
neither reported any portion of the $800,000 settlement nor
claimed any deductions relating to the medical malpractice
dispute.
The DiBiasios
On July 9, 1982, at St. Joseph Hospital in Providence, Rhode
Island, Dr. A. Louis Mariorenzi operated on Mr. DiBiasio's left
knee. During the operation, Dr. Mariorenzi punctured an artery
in Mr. DiBiasio's knee. As a result of complications relating to
the punctured artery, Mr. DiBiasio required extensive vascular
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