Phillip Lee Allen and Carolyn F. Allen - Page 1

                                  T.C. Memo. 2002-302                                   

                                UNITED STATES TAX COURT                                 

                PHILLIP LEE ALLEN AND CAROLYN F. ALLEN, Petitioners v.                  
                     COMMISSIONER OF INTERNAL REVENUE, Respondent                       

               Docket No. 243-97.               Filed December 11, 2002.                

                    Ps were successful in this Court in showing that a                  
               $130,000 payment received in settlement of an insurance                  
               claim was not for punitive damages and that any gain                     
               realized would not be recognized under sec. 1033,                        
               I.R.C.  Ps seek to recover litigation costs under sec.                   
               7430, I.R.C.  The parties disagree about one of the                      
               prerequisites to recovery--whether Ps exhausted their                    
               administrative remedies before the Internal Revenue                      
               Service.  Sec. 7430(b)(1), I.R.C.; sec. 301.7430-                        
               1(b)(2), Proced. & Admin. Regs.                                          
                    Following the examination, Ps’, in the Appeals                      
               conference, argued that repair costs exceeded the total                  
               insurance recovery so that no portion was attributable                   
               to punitive damages.  R contends that Ps, in order to                    
               have exhausted their administrative remedies, should                     
               have submitted additional information to the Appeals                     
               officer.  Some of the information was in existence and                   
               some was not available to Ps at the time of the Appeals                  

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