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samuel had worked for pearl inc for 35 years when he was discharged and his position 699039

Samuel had worked for Pearl, Inc., for 35 years when he was discharged and his position filled by a much younger person. He filed and pursued a suit for age discrimination and received an award of $1.5 million. Under the contingent fee arrangement with his attorney, one third of the award was paid directly to the attorney, with the balance going to Samuel. Samuel reported $1 million gross income on his tax return, but he did not include the $500,000 paid to the attorney. The IRS audited Samuel’s return and included the $500,000 contingency fee in gross income. At the same time, Samuel was allowed a miscellaneous itemized deduction (subject to the 2% floor) for the fee paid to the attorney. The IRS adjustment caused a tax deficiency to be assessed for both the regular income tax and the AMT. Evaluate the results reached.

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