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1997 payment), and (4) November 11, 1998 (November 1998
payment).14
UTA did not withhold any taxes from the $4 million it paid
petitioner pursuant to the defamation agreement (i.e., with
respect to petitioner’s defamation claim). Petitioner never
attempted to sell his anticipated stream of income from the
settlement.
Petitioner’s Tax Returns
In April and May 1996, petitioner consulted with tax
accountants and tax attorneys to discuss the state of the tax law
as it related to the settlement with UTA. Petitioner was told
that the $4 million allocated to the defamation claim would be
nontaxable.
Petitioner advised his business manager, from the firm of
Kessler Schneider, to disclose the settlement with UTA on his tax
returns in the most clear and proper way possible. Petitioner’s
business manager prepared petitioner’s tax returns in
consultation with petitioner’s tax attorneys.
On his Federal income tax returns for 1992 through 1996,
petitioner reported the following total salary and bonus received
from UTA: $450,000 in 1992, $954,000 in 1993, $1,190,229 in
1994, $1,956,408 in 1995, and $1,768,681 in 1996.
14 Sometime after the settlement was executed, UTA ceased
making payments provided for in the settlement agreement. A
lawsuit ensued, and payments eventually resumed.
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