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After his termination and the conclusion of the settlement
negotiations, petitioner felt he had no viable career as a talent
agent. He also did not believe he could start his own talent
agency. Petitioner thus decided to pursue a career as a talent
manager and as a film and television producer. Talent managers
are not allowed to procure employment on behalf of clients and do
not benefit from the fixed commission rates that talent agents
are entitled to receive under their agreements with the talent
guilds.
Around May 1996, he started Hofflund Polone with Judy
Hofflund (a former partner at UTA). During 2001 or 2002,
petitioner formed a production company named Pariah Productions.
As of the time of trial, petitioner had at least two
television shows on the air--Family Affair and Hack. Several
pilots he produced had not yet been picked up as series, and he
had not produced any feature films.
Payments Made to Petitioner Pursuant to the Settlement Agreements
Pursuant to the employment termination agreement, UTA paid
petitioner $950,000 in 1996 and $1,050,000 in 1998. Petitioner
included these amounts on his respective Federal income tax
returns for 1996 and 1998.
Pursuant to the defamation agreement, UTA paid petitioner $1
million on or about: (1) May 1, 1996 (May 1996 payment), (2)
November 11, 1996 (November 1996 payment), (3) May 5, 1997 (May
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