- 36 -
payments and provided an explanation for the tax treatment of
those payments on his returns for 1997, 1998, and 1999 (there was
no statement or disclosure for 1996), there was no reasonable
basis for excluding the full amounts. Petitioner knew that there
was an express allocation in the settlement agreement among
compensatory damages, “additional damages”, and “other damages”,
including punitive damages and interest. Additionally,
petitioner included the amounts received from the second annuity
in his gross income on his original returns for 1996, 1997, and
1998. On his original returns for 1997 and 1998, he specifically
designated those amounts as “punitive”, further indicating his
knowledge that punitive damages and interest were not excluded
under section 104. Therefore, in the absence of reasonable cause
or substantial authority for excluding from his income any of the
payments received in 1996, 1997, 1998, or 1999, the disclosures
were inadequate to reduce the understatement of his tax that is
subject to penalty under section 6662(d).
Finally, petitioner did not act with reasonable cause and in
good faith. Sec. 6664(c)(1). From 1996 through 1998, petitioner
reported on his original returns the receipt of punitive damages,
yet the damages received in 1999 under the same paragraphs of the
settlement agreement were not included by petitioner.
Furthermore, though it appears that petitioner had assistance in
preparing his returns for 1997 and 1998, there is no evidence as
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011