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check and wrote “for deposit only * * * [trust account]” on the
back. During 1999, the $148,680 in settlement proceeds earned
$1,299 in interest while on deposit in the trust account.
Throughout the pendency of the first bankruptcy proceeding,
Proulx, through actions taken in that proceeding as well as
actions taken in California courts, attempted to collect on his
judgment against petitioner. Petitioner, at all times, resisted
his efforts.
On August 13, 1999, petitioner filed for chapter 7
bankruptcy (the second bankruptcy proceeding). Had petitioner
not filed the second bankruptcy petition, petitioner might have
been required to pay over the reward proceeds to Proulx pursuant
to a State court order. Pursuant to the second bankruptcy
proceeding, the reward proceeds were transferred from the trust
account to Richard Kipperman (Kipperman), the chapter 7 trustee.
On September 4, 2001, Kipperman initiated an adversary action
against Proulx in order to determine whether Proulx’s lien
attached to the reward proceeds. A series of proceedings
ultimately determined that it did. As it turned out, the
conflict between Proulx and petitioner would not be resolved
until the middle of 2003.
Taking into account an extension, petitioner’s 1999 Federal
income tax return was timely filed. Receipt of the $148,680
reward is disclosed on line 21 of that return. The amount of the
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Last modified: November 10, 2007