Peebles v. Commissioner
United States Tax Court
T.C. Summ. Op. 2006-61 (2006)
Milton Peebles (plaintiff) and his wife lived in a small town in Arkansas. Mr. Peebles discovered his wife was having an affair with Dr. John Hestir. Mr. Peebles confronted Dr. Hestir, threatening to sue him for $150,000. After Dr. Hestir refused to pay the sum, explaining that he did not have the money, Mr. Peebles forced Mrs. Peebles to call Dr. Hestir’s wife and tell her about the affair. In response, Dr. Hestir agreed to pay Mr. Pebbles $25,000. When exchanging the money, Dr. Hestir referred to the payment as free money but warned Mr. Peebles that it would be considered income. Mr. Peebles agreed that in the case of a divorce, he would not name Dr. Hestir in the proceedings. Later, Mr. Peebles reported Dr. Hestir’s conduct to the Arkansas State Medical Board (the Board). Dr. Hestir also wrote a letter to the Board, admitting his affair and expressing regret. At a hearing, Mr. Peebles told the Board that he believed Dr. Hestir had made the $25,000 payment to clear his conscience. Dr. Hestir reported the $25,000 payment on his income-tax return. Mr. Peebles did not report the payment on his income-tax return because he believed it was a gift rather than taxable income.
Rule of Law
Holding and Reasoning (Colvin, J.)
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