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Internal Revenue Service or other taxing authority, and
reasonable attorney’s fees incurred.
Mr. Oyelola further agreed, in paragraphs 7 and 9 of the
settlement document, that his separation of employment from the
Company3 would be effective upon his execution of the settlement
agreement and that he would withdraw and obtain dismissal with
prejudice of any charges filed with any court or administrative
agency against the Company and related individuals.
Petitioners filed joint Forms 1040, U.S. Individual Income
Tax Return, for 1997 and 1998. On their 1998 return, petitioners
did not report as income the $30,000 settlement payment
designated as compensation for emotional distress. On January 3,
2002, respondent issued to petitioners the notice of deficiency
underlying the instant proceeding, in which respondent
determined, inter alia, that the $30,000 payment was taxable to
petitioners.
Discussion
I. Burden of Proof
In general, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving otherwise.
Rule 142(a). Section 7491, effective for court proceedings that
arise in connection with examinations commencing after July 22,
3 Hereinafter, for convenience, we adopt the terminology of
the settlement agreement and refer to Massachusetts Mutual Life
Insurance Company as the Company.
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Last modified: May 25, 2011