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pursuant to section 6651(a)(1) and (2). After concessions,2 the
issues for decision are (1) whether $157,0003 petitioner received
in connection with a settlement of a lawsuit is excludable from
gross income pursuant to section 104(a)(2), and (2) whether
petitioner is liable for an addition to tax pursuant to section
6654(a).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time she filed the
petition, petitioner resided in Yuba City, California.
2 Respondent conceded the sec. 6651(a)(1) and (2) additions
to tax. Respondent also conceded that petitioner paid $10,835
for medical expenses, $6,129 for taxes, $18,911 for interest, and
$1,091 in charitable donations.
3 This amount equals settlement proceeds of $475,000 net of
petitioner’s attorney’s fees, litigation expenses, and the amount
paid to her as wages. In Commissioner v. Banks, 543 U.S. 426
(2005), decided over 10 months before trial in this case, the
Supreme Court held that as a general rule, when a litigant’s
recovery constitutes income, the portion of the recovery paid to
an attorney as a contingent fee is included in the litigant’s
income. At the beginning and the end of the trial, pursuant to
Rule 41(b) respondent orally moved to amend the pleadings to
conform to the evidence (i.e., to treat the entire settlement
proceeds of $475,000 as income). Generally we do not consider
issues that are raised for the first time at trial. See Foil v.
Commissioner, 92 T.C. 376, 418 (1989), affd. 920 F.2d 1196 (5th
Cir. 1990); Markwardt v. Commissioner, 64 T.C. 989, 997 (1975).
Additionally, we denied respondent’s motion as it was prejudicial
to petitioner to allow respondent to amend the pleadings this
late. Respondent had sufficient time to amend the pleadings
before trial.
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