- 4 - Petitioner disputed the FDIC’s claim, and, during October 1995, petitioner and the FDIC entered into a settlement agreement in which petitioner agreed to pay an additional $975,000 in exchange for a release of the FDIC’s claims against him. The settlement agreement states in part that petitioner “denies the entire claim” and that petitioner and the FDIC were settling the dispute to “avoid the time and cost of litigation”. During November 1995, petitioner paid the FDIC the $975,000 specified in the settlement agreement. The FDIC then issued petitioner a Form 1099-C, Cancellation of Debt, indicating that petitioner had received $1,512,193 of income from discharge of indebtedness. Petitioner contacted the FDIC to dispute the issuance of the Form 1099-C, but the FDIC refused to rescind or amend the information return. On their joint 1995 Federal income tax return, petitioners did not report the $1,512,193 as income. Additionally, petitioners claimed a $999,090 deduction on Schedule C, Profit or Loss From Business, for horse breeding and training activity. The $999,090 represents the $975,000 payment to the FDIC and $24,090 of legal fees reportedly paid in connection with the settlement. Taking into account the deduction claimed on Schedule C, petitioners reported adjusted gross income of $460,898.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NextLast modified: November 10, 2007