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With respect to the portions of the settlement award
allocated to tort claims of the class plaintiffs and attorney's
fees, IDS issued a single check directly to Winthrop and
Weinstine in the total amount of $23,783,333, of which
$12,616,666 represented the portion allocated to tort damages and
$11,166,666 represented the portion allocated to attorney's fees.
The total proceeds from this check were deposited into a trust
account on behalf of the class action plaintiffs.
In the instant case, the parties have stipulated that the
$862,906 that petitioner received under the above settlement is
allocable as follows:
$273,573 --- Back wages and taxable as ordinary income;
$109,429 --- Tort damages and excludable from income;
$164,144 --- Tort damages and includable in income;
$ 63,152 --- Attorney's fees attributable to tort
damages excludable from income and
therefore also excludable from income;
$252,608 --- Attorney's fees attributable to taxable
portion of funds received and the tax
treatment of which is in dispute herein.
On their 1992 individual joint Federal income tax return, of
the total $862,906 in funds that was received from IDS on
petitioner’s behalf, petitioners did not report as income the
$252,608 portion of the funds that was attributable to attorney's
fees allocable to the taxable portion of the funds received.
On audit, respondent determined that the $252,608 relating
to attorney's fees constituted taxable income to petitioners and
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Last modified: May 25, 2011