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hearing on the damages, the circuit court affirmed the jury's
verdict. In its order, the court indicated that evidence of
mental anguish supported the compensatory award and found that
the punitive damages were not excessive. Union appealed the
judgment to the Alabama Supreme Court, which affirmed the
judgment but granted a remittitur of $2,000.2 Union ultimately
paid the judgment of $6,151,000 to petitioner's attorneys.
Petitioner and her attorneys had entered into a contingent fee
arrangement whereby the attorneys were entitled to a percentage
of the proceeds arising out of her case, along with the related
legal expenses. Petitioner's share of the jury award, after
legal fees and expenses were deducted by her attorneys, amounted
to $3,039,191.
Petitioner did not report any portion of the jury award as
income on her Federal income tax return for 1992. In the notice
of deficiency, respondent determined that petitioner is required
to report the $6 million she received for punitive damages as
income. Further, respondent determined that petitioner is
entitled to deduct the attorney's fees and costs as a miscel-
laneous itemized deduction.
Discussion
2The Court's opinion can be found at Union Mortgage Co. v.
Barlow, 595 So. 2d 1335 (Ala. 1992). The amounts remitted
related to the $1,000 compensatory damages and the $1,000
punitive damages awarded for the conspiracy claim.
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