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tax return for the prior year also reported no tax liability; the
return showed a net loss of $67,570.
Petitioners' 1989 tax return, as originally filed, reported
that they had no taxable income and no tax liability. On a
schedule attached to that return, petitioners listed the
following information in support of $586,325 that they included
as other income, and that they offset by a $383,073 net operating
loss:
Lawsuit settlement:
Gross proceeds.................... $1,500,000
Less legal fees.............. 413,675
Less reimbursements.......... 1500,000
Net other income............ 586,325
1Petitioners concede that they incorrectly deducted $2,333
more than they actually paid to Intrastate as "Reimbursements".
Intrastate paid all legal fees as they were incurred, and it
deducted these fees on its tax returns for the years in which the
fees were paid. Intrastate deducted all salary and other
compensation paid to Mr. Syphrett, along with related employment
taxes, on its tax returns for the years in which these amounts
were paid.
The parties to the Wiewall litigation moved to dismiss that
case on December 13, 1990, with prejudice to their rights to
refile any claim, counterclaim, or any part thereof. In
connection with this dismissal, Intrastate recovered all of the
Contracts, and Mr. Syphrett received nothing.
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