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All section references are to sections of the Internal
Revenue Code in effect for the year at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
Respondent determined a deficiency in petitioner's Federal
income tax of $1,441,736 for the taxable year 1992. Petitioner
resided in Hayneville, Alabama, at the time the petition was
filed in this case.
The parties agree that this case may be resolved in its
entirety via summary judgment. The issues remaining for decision
are whether punitive damages received by petitioner are includ-
able in income and whether the amounts paid for attorney's fees
should be excluded from petitioner's income.
Background
The background facts related below are derived from the
pleadings filed in this case, affidavits filed by respondent's
counsel and petitioner's counsel, the parties' uncontroverted
written representations, and the exhibits attached thereto.
During 1987 and 1988, petitioner owned a home in Alabama
where she resided. During this time, American Home Improvement
Services of Alabama, Inc. (American Home), was in the business of
making home improvements and arranging for the financing of home
improvements. Also during this time, Union Mortgage Co. (Union)
made mortgage loans in Alabama.
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