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to Thrifty's breach of the covenant of good faith and fair
dealing was the only cause of action as to which the jury
found for petitioner and awarded damages. Petitioner's
final award, including interest, totaled $314,173.91.
Thrifty issued a check dated August 11, 1994, in the
amount of $314,173.91 in full satisfaction of the judgment
against it. The check was made payable jointly to
petitioner and his attorneys.
Petitioner's attorney, Mr. Greenberg, received
Thrifty's check. He deducted his fees of $114,532.39 from
the award, as authorized by the retainer agreement, and
disbursed the remaining proceeds of Thrifty's payment,
$199,641.52, to petitioner by check dated August 26, 1994.
Mr. Greenberg also issued a check to petitioner in the
amount of $62.69 to reimburse him for unused cost advances.
Petitioners timely filed their 1994 Federal income tax
return, but they did not include any portion of the jury
award in their gross income. Respondent issued a notice of
deficiency to petitioners. Among other adjustments,
respondent determined that petitioners should have included
the entire jury award of "$314,174.00" in their gross
income for 1994. The notice of deficiency states in part
as follows:
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