- 4 -
costs." The final entry of judgment filed on May 18, 1990, was
not an enforceable final judgment under Rhode Island law because
it was voided by the parties' settlement. The stipulation of
dismissal voided the judgment previously entered in that case.
Allstate issued checks totaling $150,000 to Mrs. Serpa and
McGair on May 17, 1991. Allstate issued a Form 1099 to Mrs.
Serpa and respondent stating that Allstate was paying $50,000 in
taxable interest income to petitioners. At the request of Mrs.
Serpa, Allstate issued an amended Form 1099 that stated Allstate
was not paying petitioners any taxable income.
McGair paid himself $51,291.37 for legal fees and costs and
paid Mrs. Serpa $98,708.63.
D. Petitioners' 1991 Tax Return and Respondent's Determination
Petitioners timely filed their 1991 Federal income tax
return. They did not report in income any of the $150,000 and
did not deduct any legal fees or costs related to the lawsuit.
Respondent issued a notice of deficiency in which respondent
determined that petitioners had an income tax deficiency of
$12,017. Respondent determined that petitioners failed to report
interest income of $50,000.2 Respondent did not allow
petitioners to deduct legal fees and costs.3
2 Respondent concedes the prejudgment interest component of
the $150,000 settlement is $42,910.
3 Respondent concedes that petitioners are entitled to
deduct legal fees and costs if respondent prevails on the
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011