Norris O. and Betty J. Whitley - Page 4

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                    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 $25,390 in actual damages for unpaid commissions and                
          $250,000 in punitive damages, together with interest and costs.             
          That verdict was affirmed upon appeal.                                      
               Academy paid $250,000 in punitive damages to petitioner in             
          1992.  Petitioner did not report any of this amount on his 1992             
          Federal income tax return.                                                  
               We must decide whether petitioner received the punitive                
          damages on account of a personal injury.  To the extent that he             
          did, the funds are excludable from his gross income.  See sec.              
          104(a)(2).  To the extent that he did not, the funds are                    
          includable in his gross income.  See sec. 61(a).  Because                   
          respondent determined that the punitive damages are includable in           
          petitioner's gross income, petitioner must prove otherwise.  See            
          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).                  
               Petitioner concedes that his gross income includes the                 
          actual damages of $25,390 which were awarded to him for unpaid              
          commissions.  As to the punitive damages, petitioner argues that            

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