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1099 to the Woodses, Jacquelyn, or respondent regarding the
proceeds.
Decof paid himself $63,379.81 for legal fees and costs and
paid the Woodses $120,472.19. Decof paid himself $640,840.39 for
legal fees and costs and paid Jacquelyn $1,218,107.61.
D. Petitioners' 1992 Tax Returns and Respondent's Determination
The Woodses and Jacquelyn timely filed their 1992 Federal
income tax returns. They did not report any of their settlement
proceeds on their returns or deduct any legal fees or costs from
the lawsuit.
Respondent issued a notice of deficiency in which respondent
determined that Jacquelyn's deficiency in income tax was
attributed to unreported interest income of $790,587, computed as
follows:
Original award Percentage1 Settlement
Damages $1,200,000 57.4712643 $1,068,361
Interest 888,000 42.5287356 790,587
Total $2,088,000 100.0000000 $1,858,948
1 Rounded.
Respondent allowed Jacquelyn to deduct legal fees of
$256,729 under section 212(1). The parties do not dispute this
amount.
Respondent determined the Woodses' income tax deficiency was
attributable to unreported interest income of $78,190, computed
as follows:
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Last modified: May 25, 2011