Gavin Polone v. Commissioner of Internal Revenue

ORDER

The panel has decided to amend the opinion filed June 5, 2006. The opinion is withdrawn and a substituted opinion is filed concurrently with this order. With the filing of the amended opinion, the petition for rehearing is DENIED.

OPINION

This appeal presents the question of whether payments received after the effective date of amendments to 26 U.S.C. § 104 (a)(2) based on a defamation settlement agreement executed prior to the effective date can be excluded from gross income. We conclude that the amendments apply to payments received after the effective date of the amendment, and we affirm the judgment of the Tax Court.

I

Gavin Polone worked as a talent agent at United Talent Agency (“UTA”) from 1989 until April 21, 1996, when he was fired. After terminating Polone, UTA spoke with various entertainment industry trade publications, and made statements about Polone’s termination. Specifically, UTA alleged that Polone was terminated for “inappropriate behavior.”

Polone hired counsel, and sent UTA a demand letter on April 22, 1996. The letter alleged that UTA had made defamatory statements about Polone, and requested that UTA “cease and desist from making further…