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Even though there was a quick settlement and a
public apology by U, P’s career as a talent agent was
ended by his termination and the negative publicity.
Subsequently, P became a talent manager and producer.
P, after consultation with tax professionals, did
not include the May 1996, May 1997, or November 1998
payments in income on his tax returns for 1996, 1997,
and 1998. P initially included the November 1996
payment in income but later filed an amended return
seeking a refund of taxes associated with this payment.
P’s returns contained detailed statements disclosing
P’s reasons for excluding the payments from income.
R audited P’s 1996, 1997, and 1998 returns.
During the audit, P’s attorney delayed several times in
responding to R. P did not provide certain documents
requested by R. P refused to be interviewed by R. R
denied P’s claim for refund and determined that none of
the $4 million paid to settle the defamation claim was
excludable from income, and P was liable for a penalty
pursuant to sec. 6662, I.R.C., for all years.
Held: P did not cooperate with R. Accordingly, P
bears the burden of proof. Sec. 7491(a), I.R.C.; Rule
142(a).
Held, further, pursuant to sec. 104(a)(2), I.R.C.,
before its amendment by the Small Business Job
Protection Act of 1996 (SBJPA), Pub. L. 104-188, sec.
1605, 110 Stat. 1838, the May 1996 payment is
excludable from income for 1996.
Held, further, pursuant to sec. 104(a)(2), I.R.C.,
as amended by the SBJPA, P is not entitled to an
overpayment for 1996, and the May 1997 payment and the
November 1998 payment are not excludable from income.
Held, further, P is not liable for the penalty
pursuant to sec. 6662, I.R.C., for 1996, 1997, and
1998.
Edwin L. Norris, Jonathan M. Brenner, and Ethan D. Millar,
for petitioner.
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