Roman G. Satko - Page 4

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               In 1998, a class action lawsuit was initiated against                  
          Prudential for misleading its clients about the VAP policies.               
          Petitioner received a settlement in the amount of $6,974.16.                
               Prudential issued petitioner a Form 1099-R, Distributions              
          From Pensions, Annuities, Retirement or Profit-Sharing Plans,               
          IRAs, Insurance Contracts, etc., reporting the $6,974.16 payment.           
          Of this amount, $4,647.83 constitutes a return of petitioner's              
          premiums.  The Form 1099-R indicates that the remaining $2,326.33           
          is a taxable amount.                                                        
               Petitioner timely filed a Form 1040, U.S. Individual Income            
          Tax Return, for tax year 1999, claiming the standard deduction.             
          On his Schedule B, Interest and Ordinary Dividends, petitioner              
          reported $2,326.33 of interest from the Prudential settlement.              
          On that same schedule, petitioner subtracted the $2,326.33 from             
          the subtotal as an "adjustment".                                            
                                     Discussion                                       
               The Commissioner's determinations in the notice of                     
          deficiency are presumed correct, and generally, taxpayers bear              
          the burden of proving that the Commissioner's determination of              
          income tax deficiencies is incorrect.  Welch v. Helvering, 290              
          U.S. 111, 115 (1933).  Section 7491 was added under the Internal            
          Revenue Service Restructuring & Reform Act of 1998, Pub. L. 105-            
          206, sec. 3001, 112 Stat. 685, 726.  If certain requirements of             
          section 7491 are met, the burden of proof with respect to factual           






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