Reginald James Smith - Page 4

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          damages for sexual and racial harassment, failure to take                   
          reasonable steps to prevent and correct harassment, and                     
          retaliation, against Onyx and petitioner’s former supervisor in             
          the Superior Court of the State of California, County of Contra             
          Costa.  In his suit against Onyx, petitioner stated a prayer for            
          relief for compensatory damages, mental and emotional distress              
          damages, punitive damages, interest, attorney’s fees, and costs             
          of suit incurred.                                                           
               In September 2004, petitioner reached a settlement agreement           
          with Onyx and petitioner’s former supervisor with respect to the            
          suit he filed on December 16, 2003.  Pursuant to the settlement             
          agreement, Onyx paid petitioner $41,651.81 in 2004.  Petitioner             
          timely filed his 2004 Federal income tax return, but he did not             
          report the amount received from the settlement on the return.               
          Respondent determined that $41,6512 was includable in                       
          petitioner’s gross income and issued a notice of deficiency to              
          petitioner on March 13, 2006.                                               
               In general, the Commissioner’s determinations set forth in a           
          notice of deficiency are presumed correct, and the taxpayer bears           
          the burden of proving that these determinations are in error.               
          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).                  

               2  The 81-cent difference between the amount paid and listed           
          in the notice of deficiency is presumably due to rounding by                

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