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Deal or No Deal at the Dealership

Posted by Mike C Posted on Apr 24 2013

In this Tax Court case, a deal seemingly too good to be true ended up being just that?the taxpayer, who is an attorney, had filed a civil suit against a BMW dealership for not honoring their online advertised price for a convertible. A settlement was reached with the dealership for $17,000; the taxpayer's lawyer kept his fee of $2,000 and issued the taxpayer a 1099-MISC for the $15,000 that he received. On the grounds that the settlement represented compensation to offset a sustained loss, the taxpayer did not include the proceeds as taxable income on his return. The court determined the settlement proceeds were indeed taxable as ordinary income since the taxpayer failed to show that his payment represented lost value to him. Unable to demonstrate reasonable cause, the taxpayer was also found subject to the Section 6662(a) accuracy-related penalty. Raphael Dang-Quang Cung . TC Memo 2013-81 (Tax Ct.)