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since Mr. Henry's income was below the amount at which section
6012 would have required him to file a tax return for that year.
Henry & Estes Associates filed Form 1065 (U.S. Partnership
Return of Income) for 1992 (1992 Form 1065), which Mr. Gargiulo
prepared. The partners of Henry & Estes Associates that were
shown in the 1992 Form 1065 were Fred Henry and Donna Henry. The
$150,000 assistance payment that Mr. Henry received from du Pont
in 1992 was not reflected in the 1992 Form 1065. Instead, that
form showed an ordinary loss from an orchid activity of Henry &
Estes Associates in the amount of $11,174.
Petitioner's Tax Treatment of
the $1,623,203 Settlement Payment
At some time before the jury verdict was reached in the
trial in the lawsuit, Mr. Henry discussed the tax treatment of
any possible recovery that he might receive from du Pont with the
lead attorney for the plaintiffs at that time. That attorney was
not an expert in tax matters. In addition, after the jury
verdict was reached, Mr. Henry raised in a social setting with
Mr. Tyler, the certified public accountant who had represented
him in settlement discussions with du Pont prior to the com-
mencement of the lawsuit, the tax treatment of any possible
recovery that he might receive from du Pont.
Mr. Henry retained Mr. Gargiulo to prepare his tax return
for 1994. In preparing that tax return, Mr. Gargiulo asked Mr.
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