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employment. On January 12, 1995, petitioner filed a claim with
UNUM for monthly disability benefits.
Initially UNUM refused to pay petitioner’s disability claim
for lack of medical documentation establishing that petitioner
suffered a loss of function. Petitioner filed an administrative
appeal. UNUM eventually reversed its initial decision and approved
petitioner’s disability claim.
On June 19, 1997, UNUM paid petitioner a lump sum of
$237,885.69 for benefits owed from March 21, 1995 to June 18, 1997.
In addition to the lump-sum payment, on July 20, 1997, petitioner
began receiving monthly disability payments of $9,333.33.
Petitioner received benefits totaling $286,931.22 in 1997 and
$115,597.08 in 1998.
On his 1997 and 1998 Federal tax returns, petitioner reported
the $286,931 (rounded) received from UNUM in 1997 and the $115,597
(rounded) received in 1998 as non-taxable sick pay. Petitioner
filed both his 1997 and 1998 tax returns in December 1999.
Although UNUM paid petitioner the disability payments in 1997
and 1998, petitioner disputed the amount of the monthly benefit he
was entitled to receive. While UNUM paid petitioner $9,333.33 per
month in 1997 and 1998, petitioner demanded monthly benefits of
$10,000. Petitioner filed suit against UNUM in State court on
September 17, 1998. Petitioner and UNUM settled their dispute, and
the suit was dismissed on November 15, 2000. The State court
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