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Petitioner performed no services for Xircom in 1994. Xircom
paid petitioner $59,163 in 1994 and $6,666.66 in 1995 under the
consulting agreement. Xircom issued to petitioner Forms 1099-
MISC, Miscellaneous Income, showing that it had paid him
nonemployee compensation in those amounts.
The consulting agreement was scheduled to expire on January
31, 1995. On January 16, 1995, petitioner wrote to Xircom and
asked Xircom to extend the period for which he was to be
compensated for another 9 months. Xircom refused.
Petitioner then offered to release Xircom from liability for
“any damages inflicted on me as a result of Xircom’s withdrawal
of job offer.” On January 24, 1995, Xircom offered to extend the
original agreement for 2 months (until March 31, 1995) if
petitioner agreed to sign a settlement agreement and mutual
release of all claims. Petitioner refused. On January 25, 1995,
petitioner threatened to sue Xircom if it did not agree to pay
him a lump-sum payment of $51,115.12 (7 months of compensation
($6,666.66) plus 7 months of COBRA coverage ($635.50)).
Petitioner asked Xircom to characterize all of its payments to
him as a “personal injury settlement (for tax purposes)”. Xircom
refused to do so.
C. Petitioner’s Lawsuit
On March 15, 1995, petitioner sued Xircom in the Superior
Court of Orange County, California. Petitioner sought $4 million
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