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petitioners may exclude from gross income pursuant to section
104(a)(2)3 a portion of the amount received by petitioner Leanna
Hawkins from Merchants National Bank (Merchants) and whether
respondent is precluded from determining the deficiency because
respondent previously issued a notice of deficiency and a closing
letter to petitioners for 1998.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner Thomas Hawkins
resided in Sacramento, California, when petitioners filed their
petition in this case.
Leanna Hawkins (petitioner) worked for Merchants for
approximately 13 years. Petitioner resigned from Merchants and
filed suit against Merchants and others in the U.S. District
Court for the Eastern District of California. Petitioner
2(...continued)
gross income the portion of Leanna Hawkins’s jury award used to
pay her attorney’s contingent fee. Petitioners and respondent
entered into a stipulation to be bound on this issue by the U.S.
Supreme Court’s decision in Commissioner v. Banks, 543 U.S. ___,
125 S. Ct. 826 (2005). The Supreme Court held that generally, to
the extent a litigant’s recovery includes income, that income
includes the portion of recovery that constitutes an attorney’s
contingent fee. Id. Therefore, petitioners must include Leanna
Hawkins’s attorney’s contingent fee in gross income.
3 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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Last modified: May 25, 2011