Thomas B. Hawkins and Leanna L. Hawkins, Deceased - Page 5

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          need to reexamine their books and records after examining them              
          previously.  Because information that may affect your tax                   
          liability has been developed since we last examined your books              
          and records, please make them available to us for reexamination.”           
          The letter was signed by Bill Marx, the acting territory manager            
          for the Large and Mid-Size Business Division.                               
               On August 28, 2002, respondent issued a notice of deficiency           
          that determined a $194,743 deficiency in petitioners’ income tax            
          for 1998.                                                                   
          Discussion                                                                  
               Exclusion Pursuant to Section 104(a)(2)                                
               Respondent determined that none of the Merchants award was             
          excludable pursuant to section 104(a)(2).  Petitioners challenge            
          respondent’s determination.                                                 
               As a general rule, the Internal Revenue Code imposes a                 
          Federal tax on the taxable income of every individual.  Sec. 1.             
          Section 61(a) specifies that, “Except as otherwise provided”,               
          gross income for purposes of calculating such taxable income                
          means “all income from whatever source derived”.  The Supreme               
          Court has long reiterated the sweeping scope of section 61.                 
          Commissioner v. Schleier, 515 U.S. 323, 327 (1995); Commissioner            
          v. Glenshaw Glass Co., 348 U.S. 426, 429-431 (1955).                        
               Section 104, in contrast, provides an exception with respect           
          to compensation for injuries or sickness.  Such exclusions from             






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