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Settlements of Lawsuits
Marine Builders, Inc.
In 1993 petitioner filed suit against Marine Builders, Inc.,
seeking damages for breach of warranty, breach of contract,
conversion, lost income, and lost value in connection with the
contract to construct the Wrecking Krew. In 1994, petitioner and
Marine Builders, Inc., entered into a settlement agreement which
provided that three installments (totaling $92,420) would be paid
to petitioner “in settlement of damages for contractual claims
that Winston Knauss has alleged against Marine Builders, Inc.”,
and that three further installments (totaling $85,119) would be
paid to petitioner “as a separate matter and as such are not
alleged damages to Winston Knauss for the contracts referenced in
the complaint for damages.” The settlement agreement further
provided that the initial three installments “are not to be
considered income under any respects to Winston Knauss”. The
agreement was silent regarding any such characterization of the
latter three installments. The initial three installments
(totaling $92,420) were paid to petitioner in 1994, and the final
three installments (totaling $85,119) were paid to him in 1995.
Marine Builders, Inc., issued a Form 1099-Misc, Miscellaneous
Income, to petitioner for 1995 denoting $85,119 as nonemployee
compensation. Petitioner subsequently admitted that the $85,119
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