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or implied, and libel, slander, defamation, damage to reputation,
and intentional or negligent infliction of emotional distress.
Pursuant to the settlement agreement, petitioner received
from the credit union a lump-sum payment of $50,000 on September
15, 1988, and monthly payments totaling $14,000 in 1988, $42,000
in 1989, and $42,000 in 1990.
In an attachment to their Federal income tax returns for
each of the years 1988, 1989, and 1990, relying on the advice of
their certified public accountant from KPMG Peat Marwick, the
firm which prepared them, petitioners reported an amount under
"miscellaneous other income" which was 25 percent of the monthly
payments as the "taxable portion of settlement with State Central
Credit Union". They also reported in 1988 an amount that was 25
percent of the $50,000 lump-sum payment. They claimed a
deduction of $13,750 for attorney's fees paid in 1988. The
returns did not disclose the full amount of the payments received
by petitioner or the percentage reported. The returns did not
report as income any part of the value of petitioner's health and
life insurance coverage.
On or about December 9, 1991, petitioners filed amended
Federal income tax returns for 1988, 1989, and 1990, containing
the following explanation:
On the return as originally filed the taxpayer had included
in Other Income the "taxable portion" of settlement proceeds
received from State Central Union. The settlement proceeds
arose from an employment discrimination claim.
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