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$262,000 in 1991 in settlement of claims for personal injuries
suffered by Mr. Wright and his spouse.
The Memorandum of Agreement provided that: (1) MEC would
receive an option to purchase all of Mr. Wright’s shares for $2.5
million if exercised before August 1, 1996, or $2.6 million if
exercised before August 1, 1997; (2) Mr. Wright would receive $1
million in revenue bonds for settlement of compensation claims;
(3) Mr. Wright would receive $1,038,000 in cash for personal
injuries he and his spouse suffered in addition to $262,000 which
he had received in 1991; and (4) the titles to three automobiles
would be transferred to Mr. Wright.
For 1992, MEC issued a Form 1099-MISC, Miscellaneous Income,
to Mr. Wright showing nonemployee compensation of $1,257,500 and
a Form W-2, Wage and Tax Statement, showing wages of $1,042,400.
There are discrepancies among the agreement, the cash receipt,
and the Form 1099-MISC regarding the amount for personal
injuries.
In the notice of deficiency for 1992, respondent determined
increased taxable income of $1,269,950 and adjusted itemized
deductions. The adjustments to itemized deductions are purely
computational and depend on the primary adjustment. The
$1,269,950 amount is consistent with the Form 1099-MISC, plus the
total value of $12,450 stated on the Bill of Sale transferring
the three automobiles from MEC to Mr. Wright. Although
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Last modified: November 10, 2007