William T. and Kathryn A. Kees - Page 5




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          Petitioner was 45 years old when he began to receive payments               
          from UNUM.                                                                  
               In a letter dated January 8, 1990, UNUM informed petitioner            
          that his disability payments would end May 1, 1991, because in              
          UNUM’s view, petitioner’s disability was due to mental illness,             
          and the disability plan covered mental illness for only 24                  
          months.  In a letter dated June 30, 1991, UNUM informed                     
          petitioner that its investigation of his medical condition was              
          ongoing, and that UNUM had decided to extend payments through               
          July 1, 1991.  For the period between May 1991 and May 1992, UNUM           
          stopped making monthly payments on several occasions and resumed            
          those payments only after petitioner threatened legal action.  In           
          May 1992, after protracted oral negotiations, UNUM paid                     
          petitioner a lump-sum settlement of $135,000 with respect to his            
          disability claim.  UNUM issued a Form W-2, Wage and Tax                     
          Statement, to petitioner for the taxable year 1992 in the amount            
          of $150,646, which included the lump-sum amount and other                   
          payments made by UNUM in that year.  Petitioners did not include            
          any of the Form W-2 amount in income in 1992 and did not attach             
          the Form W-2 to their return.                                               
               On July 17, 1992, petitioner filed a request for hearing               
          with the Social Security Administration for disability insurance            
          benefits, and his claim was upheld in a decision by the presiding           
          administrative law judge on March 24, 1993.  The administrative             
          law judge found that petitioner was under a “disability” within             
          the meaning of sections 216(i) and 223 of the Social Security               


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