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On December 9, 1999, petitioners contacted an attorney,
Daniel McDaniel (McDaniel). McDaniel advised petitioners not to
cash the check in order to prevent jeopardizing their legal
position against JTF. On the basis of the information provided
by petitioners, McDaniel believed that JTF had tendered the check
to Pellegri in full and final payment for both the Pellegris’ and
petitioners’ claims. McDaniel and petitioners calculated a claim
that petitioners were entitled to $29,506.32 from JTF. In a
letter to JTF dated December 16, 1999, McDaniel wrote:
my clients are willing to accept payment of the sum of
$29,506.32 in full and final settlement of all claims
in this matter, provided that payment is made within
fifteen (15) days. We are holding Steve Pellegri’s
check in the sum of $11,091.90, which can be credited
to the $29,506.32 with the agreement of all concerned.
This would leave a net of $18,414.42 due from your
firm. * * * If payment is not made, however, our offer
is withdrawn and we will proceed as deemed appropriate.
JTF did not immediately respond to the letter.
During the following months, McDaniel made several
unsuccessful attempts to negotiate a settlement with JTF. In
April 2000, petitioners stopped pursuing their claim against JTF
and cashed the check. Their decision was based in part on
McDaniel’s advice against litigating and in part on petitioners’
pressing need for the money.
Petitioners did not include the check as income on their
1999 Federal income tax return. Instead, in a footnote on that
return petitioners disclosed receiving a payment of $11,091.90,
but they explained that they were not reporting the payment as
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Last modified: May 25, 2011