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Petitioners petitioned the Court to redetermine a $3,901
deficiency in their 2002 Federal income tax. Following
petitioners’ concessions, we are left to decide whether their
2002 gross income includes $15,672 of prejudgment interest
received in a personal injury lawsuit. We hold it does.
Background
Some facts were stipulated. We incorporate herein by this
reference the parties’ stipulation of facts and the exhibits
submitted therewith. We find the stipulated facts accordingly.
Petitioners resided in Alaska when their petition was filed.
Bryan D. Watson, Jr. (Watson), was one of three plaintiffs
who filed lawsuits in Alaska Superior Court alleging damages from
a single accident that occurred in 1998. Watson alleged in his
lawsuit that the defendants had caused him to suffer bodily
injury on account of the accident. Watson and the other two
plaintiffs settled the lawsuits for $384,219.59. That amount
reflected the policy limits of the defendants’ insurance policy
inclusive of its face value ($300,000), attorney’s fees
($37,201.78), and statutorily required prejudgment interest
($47,017.81). The $384,219.59 was reduced to $345,991.47 to
reflect subrogation liens and then split equally among the
plaintiffs; i.e., $115,330.49 each. Watson received his
$115,330.49 in 2002 and did not include any of that amount in his
2002 gross income as reported on petitioners’ 2002 joint Federal
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Last modified: May 25, 2011