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of the lien. Out of the $112,000 eventually awarded in the Lane
litigation, petitioners received the net amount of $37,000.
In 1991, petitioners reported the casualty loss they
suffered through the damage to their property and the
reimbursement they received for repairs. Petitioners reported
that they received a total of $269,467.20, for which they claimed
nonrecognition treatment under section 1033. This figure
included the $102,467.20 received from Allstate before the
settlement, the $130,000 settlement payment and $18,500 from each
of Lane’s insurers, State Farm, and coincidentally, Allstate.
Respondent sent petitioners a notice of deficiency, stating that
the $130,000 settlement payment was taxable. Respondent also
determined that the income increase caused purely mathematical
adjustments to deductions and exemptions taken by petitioners.
Respondent determined petitioners also owed a $7,939 accuracy-
related penalty under section 6662(a) for their failure to
include the $130,000 payment in income. Petitioners dispute the
income tax deficiency and penalty.
OPINION
The sole adjustment under consideration involves the
question of whether petitioners are entitled to use the
nonrecognition provisions of section 1033. All other adjustments
and our consideration of the penalty depend on the outcome of
this primary issue.
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