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The sole issue for decision is whether $25,000 paid to
petitioners in 1999 is a gift or is includable in their gross
income. We hold that it is includable in income.
Background
Some of the facts have been stipulated and are so found.
Petitioners are married and lived in DeWitt, Arkansas, when
they filed the petition. DeWitt, Arkansas, has a population of
about 3,500.
In 1999, Milton D. Peebles (petitioner) was a police officer
in DeWitt. Mrs. Peebles was a patient of Dr. John M. Hestir (Dr.
Hestir), who had a medical practice in DeWitt. Petitioner
discovered in October 1999 that Dr. Hestir and Mrs. Peebles were
having an affair. Petitioner documented that fact by
surreptitiously recording their phone calls. Petitioner
confronted Mrs. Peebles with the evidence.
Petitioner then lured Dr. Hestir to petitioners’ home on the
pretext that Mrs. Peebles needed medical care. Petitioner is
about 20 years younger than Dr. Hestir and is capable of being
loud and garrulous when angry. One of petitioners’ adult
daughters was home at that time and acted appropriately to keep
things under control by calling the county sheriff to their home.
Petitioner was angry when Dr. Hestir arrived. At that time,
petitioner confronted him with the evidence of the affair and
threatened to sue him for $150,000. Dr. Hestir told petitioner
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