Emmanuel L. Roco - Page 6

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          income tax consequences of the qui tam payment he received.                 
          Petitioner’s request was assigned to Sheldon Iskow (Iskow).  In             
          August 1997, Iskow told petitioner that there were no court cases           
          holding that qui tam payments are includable in gross income.               
          Iskow also told petitioner that he believed a qui tam payment is            
          taxable because it is analogous to a reward, and that the IRS               
          would rule that the qui tam payment was taxable unless petitioner           
          provided legal authorities for his position or withdrew his                 
          request for a ruling.  Petitioner withdrew the letter ruling                
          request.                                                                    
          E.   Petitioner’s 1997 Tax Returns                                          
               Petitioner made no estimated tax payments to the United                
          States in 1997 relating to the qui tam payment, but he did make             
          an estimated tax payment of $80,500 to the State of New York.               
          Mrs. Roco helped petitioner prepare and file his Form 1040,                 
          Individual Income Tax Return, for 1997.  Petitioner did not                 
          report the qui tam payment on his State and Federal returns for             
          1997.                                                                       
               Petitioner and Mrs. Roco filed joint Federal returns for               
          1995, 1996, 1998, 2000, and 2001, but they filed separate returns           
          for 1997.  They expected respondent to discover that petitioner             
          had not reported the $1,568,087 payment by matching the Form                
          1099-MISC with his 1997 return, and that respondent would decide            
          to audit petitioner’s 1997 return.  Mrs. Roco believed she might            






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