Robert E. Corrigan - Page 7

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          grounds that related to his employment as counterclaims                     
          against Prudential, including breach of contract, breach of the             
          covenant of good faith and fair employment, fraud, negligent                
          misrepresentation in petitioner’s hiring, and punitive damages.             
          During 1990, the arbitration proceeding was settled.  Under the             
          settlement, Prudential released petitioner from his obligation to           
          repay the $325,000 loan balance, and petitioner agreed to drop              
          his employment-related claims.  Petitioner’s attorney wrote                 
          petitioner a letter stating that the $325,000 would be                      
          reclassified by Prudential as punitive damages, but the attorney            
          did not provide any tax advice regarding this item.                         
               Prudential, in connection with the settlement and release of           
          the loan obligation, issued petitioner a Form 1099 MISC,                    
          Miscellaneous Income, for 1990 reflecting $325,000 as nonemployee           
          compensation to petitioner.  Petitioner did not report the                  
          settlement as income.                                                       
               During 1987, while petitioner’s dispute with Prudential was            
          ongoing, he transferred his interests in the JAC Ranch and the              
          Newport Beach residence to Mrs. Corrigan.  Mrs. Corrigan quit-              
          claimed the deeds for both properties back to petitioner once               
          the Prudential matter was settled.  At all pertinent times,                 
          petitioner was the sole mortgagee and the only person obligated             
          to make mortgage payments with respect to the mortgage on the JAC           
          Ranch property.                                                             






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