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Hofflund Polone, a partnership, allocated to petitioner or
petitioner’s wholly owned corporation the following taxable
income: $84,416 in 1996, $1,300,423 in 1997, $1,624,867 in 1998,
$1,684,024 in 1999, $2,395,145 in 2000, and $2,377,146 in 2001.
On or about October 10, 1997, petitioner filed his 1996
Federal income tax return. Petitioner did not include the May
1996 payment in income on his 1996 return. Petitioner reported,
under other income on his 1996 return, a $1 million payment from
UTA on his 1996 return. This amount, which represented the
November 1996 payment, was in addition to the wages he reported
from UTA in 1996. Statement 1 of petitioner’s 1996 return
stated: “Taxpayer received $1 million from United Talent Agency
(UTA), representing settlement of claims by taxpayer for personal
injury against UTA, pursuant to an agreement as of May 1, 1996.
The lump-sum payment received does not constitute income subject
to self-employment tax.”
On his 1997 return, petitioner reported, under other income,
$2,000. Petitioner did not include the May 1997 payment in
income. On the line for other income “See Statement 1" was typed
in. Statement 1 of petitioner’s 1997 return listed $2,000 from
Conde Nast Publications and $1 million from UTA as “miscellaneous
income” and subtracted out $1 million as UTA settlement proceeds
to arrive at a total of $2,000. Below the subtraction were the
words “see footnote”. The footnote, contained in statement 2,
stated:
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