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petitioner reported receipt of $257,076 of annuity income, of
which $95,088 was reported as taxable. Attached to his return
was Form 8275, in which petitioner made statements similar to
those on his 1997 Form 8275. Additionally, with respect to
petitioner’s interest in TS Capital, petitioner reported losses
in the amount of $811,641. Petitioner’s return for 1998 showed
no tax due.
On October 16, 2000, petitioner filed his income tax return
for 1999. On his return, petitioner reported receipt of
$4,761,000 of annuity income, of which none was reported as
taxable. Attached to his return was Form 8275, in which
petitioner stated:
(1) This amount [$3,000,000] represents payment
received for additional damages from Met. Life annuity
contract funded by the State of Texas. No Form 1099
was issued. (See attached statement 1(a) for further
explanation.)
(2) This amount [$1,761,000] represents payment
received for all other damages from Met. Life annuity
contract funded by the State of Texas. A Form 1099 was
issued. (See attached statement 2(a) for further
explanation.)
The attached statements were as follows:
1(a) The final annuity payment in the sum of $3,000,000
received in 1999 represents additional damages
excludable from income under IRC Section 104(a)(2).
2(a) The final annuity payment in the sum of $1,761,000
received in 1999 represents all other damages
excludable from income under IRC Section 104(a)(2).
Taxpayer cites what he believes is controlling case law
as well as the Supreme Court’s historical principles of
restoration of “Capital Lost-Not Income” to define
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