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to the fact that the payments were loans until the character of
the payments was resolved on December 22, 1994. Based on this
theory, petitioner contended that the income was properly
reported on petitioner’s 1995 Federal income tax return because
the resolution of its character occurred in Winston’s fiscal year
ended January 31, 1995.
OPINION
This controversy concerns the proper reporting of settlement
payments received by petitioner in connection with his severance
and/or being relieved from his position as a partner in a law
firm. Petitioner contends that the $116,000 was paid to him to
settle a personal injury claim and is excludable from income
under section 104(a)(2). Respondent contends that the payment
was in consideration of petitioner’s severance from the law firm
and not in settlement of a tort claim.
A second issue concerns whether payments totaling $48,420
received by petitioner prior to the final settlement were
nontaxable loans or taxable advances. Finally, we must decide
whether petitioners are liable for an accuracy-related penalty
under section 6662(a).
I. Is The $116,000 Settlement Payment Excludable From Gross
Income Under Section 104(a)?
A. General Rules
“[E]xcept as otherwise provided”, gross income for the
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