George W. Guill - Page 4

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          to the jury.  The judge instructed the jury as follows with                  
          respect to punitive damages:                                                 
                    The plaintiffs [petitioner and the male taxpayer                   
               in Whitley v. Commissioner, T.C. Memo. 1999-124] are                    
               also seeking punitive damages in their conversion cause                 
               of action.                                                              
                    The law permits the jury, under certain                            
               circumstances, to award punitive damages in order to                    
               punish a wrong-doer for some extraordinary misconduct,                  
               and to serve as a warning not to engage in such conduct                 
               in the future.                                                          
                    Thus, if you find that the plaintiffs have shown                   
               by a preponderance of the evidence, that the defendant                  
               converted the plaintiffs' money with malice, ill will,                  
               a conscious indifference to the rights of others, or a                  
               reckless disregard for the rights of others, you may                    
               award the plaintiffs punitive damages.                                  
                    If you so find, it becomes your right to award                     
               punitive damages in such an amount as you unanimously                   
               agree to be proper in light of the character of the                     
               wrong committed, the punishment which should be                         
               applied, and the ability of the defendant to pay.                       
               The jury found against Academy on the conversion claim and              
          awarded petitioner $51,499 in actual damages for unpaid                      
          commissions and $250,000 in punitive damages, together with                  
          "interest thereon at the rate of 8.85 per cent and his costs of              
          action".  The jury's verdict was affirmed upon appeal.                       
               Academy paid $371,542 to petitioner in 1992, and, from that             
          amount, he paid his attorneys the legal costs, which consisted of            
          $148,617 in attorney's fees and $3,279 in court costs.                       
          Petitioner included the actual damages in income on his Schedule             
          C, Profit or Loss From Business, and he claimed on that schedule             
          a deduction for the legal costs.  Petitioner did not report any              
          of the punitive damages on his 1992 Federal income tax return.               

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