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By the end of 1999, the bank had paid petitioner $500,000, and
petitioner had paid Mr. McKenna $75,000 from the amount received.
Sometime during 1999, petitioner contacted a Nevada
Congressman’s office to inquire about the taxability of the
settlement proceeds and received a response from a representative
of a local Taxpayer Advocate Service office in return.
Petitioner was dissatisfied with the clarity of that office’s
response, and he sent a letter dated January 20, 2000, to the
District Director of the Internal Revenue Service (IRS) in
Phoenix, Arizona, again inquiring about the taxability of the
proceeds he received for violation of his “civil rights to a full
and impartial tribunal”. On or about February 11, 2000, the
District Director responded by letter to petitioner’s inquiry.
The letter informed petitioner of the rules generally governing
the taxation of court awards and settlements, and stated:
If this information is insufficient for your needs,
there are other avenues you can follow to receive a
more formal opinion on the taxability of the funds
received in the settlement. You can request an opinion
letter, private letter ruling, or a determination
letter. * * * The user fee for a ruling or letter * *
* would be * * * $2,500, if your total income is over
$150,000.
Petitioner did not request a ruling or letter.
On or about April 17, 2000, petitioner filed a Form 1040,
U.S. Individual Income Tax Return, for 1999. Petitioner did not
include the $500,000 of settlement proceeds in the gross income
he reported on his 1999 return. Petitioner attached a statement
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