Bagley v. Commissioner

Bagley v. Commissioner

Opinion

 [*396]  SCOTT, Judge: Respondent determined a deficiency in petitioners' income tax for the calendar year 1987 in the amount of $ 488,976.31. The issues for decision are: (1) What portion, if any, of the amount of $  [**3]  1.5 million paid to Hughes Bagley (petitioner) in settlement of a suit against Iowa Beef Processors, Inc. (IBP), is allocable to punitive damages; (2) whether the $ 500,000 in punitive damages paid to petitioner pursuant to a judgment against IBP, and the portion, if any, of the $ 1.5 million paid to petitioner in settlement of his suit  [*397]  against IBP which is allocable to punitive damages, are excludable from petitioner's income under section 104(a) (2) ¹ as damages received on account of personal injuries; (3) whether the portion of the legal fees of $ 768,484.87 paid by petitioner during 1987 in connection with his suit against IBP, which was a contingency fee based on a percentage of the recovery, is properly to be offset against the recovery and, therefore, not includable in income, or is a miscellaneous itemized deduction subject to the adjustment for 2 percent of adjusted gross income under section 67(a); and (4) whether the portion of the legal fees paid by petitioner in 1987, which was computed on an hourly basis, is deductible by petitioner on Schedule C or is an itemized deduction to the extent deductible; (5) whether the amount of $ 48,575.34 of prejudgment and the amount [**4]  of $ 282,772.41 of postjudgment interest paid to petitioner, pursuant to a judgment against IBP, are includable in petitioners' gross income.

FINDINGS OF FACT

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