- 14 -
Mr. Forste received payments under the agreement with DHS in
1990, 1992, 1993, and 1996. DHS issued Forms W-2, Wage and Tax
Statement, to Mr. Forste for those years. On those forms, DHS
reported taxable income in the full amounts of the annual
settlement payments, and it withheld taxes. Petitioners excluded
the payments received in 1990, 1992, and 1993 on their joint
Federal income tax returns for those years. Petitioners attached
to their 1992 and 1993 joint Federal income tax returns
supplemental statements regarding the amounts received in those
taxable years from DHS. The supplemental statements state that
“the money reported in salary for Norman L. Forste was paid to
him because of a medical problem that prevented him from working
at his prior position.”
Respondent audited petitioners’ returns for 1990, 1992, and
1993 but in each case conceded that the payments from DHS were
excludable from gross income.
Respondent issued a notice of deficiency with respect to
petitioners’ 1990 taxable year in which he determined that the
amount received from DHS in that year was taxable. Petitioners
filed a Tax Court petition with respect to the deficiency
respondent determined for the 1990 taxable year. In that
petition, petitioners alleged that the payments from DHS were
nontaxable income. A Form 3100, Appeals Division Feedback Report
and Transmittal Memorandum, dated July 12, 1993, states “included
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011