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Kenneth’s estate resided, and had a business address, in
Pennsylvania when the petition was filed.
The issue for decision is whether Kenneth was entitled,
pursuant to section 104(a)(2), to exclude from income payments
received in settlement of a dispute.
FINDINGS OF FACT
Kenneth and his father built a large beauty salon enterprise
(i.e., beauty salons, schools, and supply businesses), comprising
three companies. Kenneth, who had a reputation for being
impeccably dressed, became an owner and pilot of airplanes,
district governor of the Rotary Club, and a prominent and proud
businessman in Pottsville, Pennsylvania.
In 1977, Kenneth suffered a debilitating stroke that left
him partially paralyzed. Kenneth never fully recovered from the
stroke and remained in poor health until his death. After his
stroke, Kenneth’s businesses began to decline. At the request of
his sons, Franklin and Dale, Kenneth, in 1980, redeemed his
shares of stock in two of his companies in exchange for annuities
and, in 1982, transferred the annuities, stock in his other
company, and other property to two irrevocable trusts, for the
benefit of himself and his wife, respectively, designating as
trustees his sons and Pennsylvania National Bank and Trust Co.
(bank). Franklin and Dale took over the businesses.
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