Richard W. Kochansky v. Commissioner Internal Revenue Service

As part of a divorce settlement, Richard Kochansky (“Kochansky”) and his wife, Carol, agreed that a portion of the contingent fee which Kochansky earned by representing a client in a medical malpractice suit would be paid to Carol. After the divorce, the malpractice case was settled favorably and the fee paid. Kochansky appeals the Tax Court’s decision that the entire amount of the contingent fee is taxable to Kochansky de spite the fact that a portion of the contingent fee was distributed to Carol. In addition, Kochansky appeals the Tax Court’s judgment upholding the Commissioner’s decision to assess against Kochansky a negligence addition to the tax. We affirm the Tax Court with regard to Kochansky’s tax liability but we reverse the assessment of the addition to the tax.

BACKGROUND

Kochansky is an attorney who brought a medical malpractice lawsuit on behalf of the McNarys. Kochansky entered an agreement with the McNarys which provided that Ko-ehansky would be paid for his services on a contingent fee basis. After the McNarys’ lawsuit was filed, but before the suit settled, Kochansky and Carol divorced. The divorce agreement provided that Kochansky and Carol would split, after…