Peter Maxwell sued his own corporation for workplace negligence and won $122,500 for injuries. The man and his wife owned 95% of a urethane manufacturing company in Chino, California. One day while Maxwell was operating a mixing device, a protruding bolt snagged his sweater and pulled him into the machinery and severely injuring him. The man hired a lawyer to sue the corporation which he and his wife owned.
Then the corporation hired a defense lawyer. Without going to court, the two lawyers a greed that the company had been negligent and should pay Maxwell $122,500 for his injuries. The I.R.S. billed Maxwell $64,185 in income taxes on the payment, and the corporation $58,800 because the I.R.S. denied the deduction of the expense. He appealed led to the U.S. Tax Court, where Judge Robert Ruwe ruled that Maxwell could have the money tax-free and that his company could deduct the sum as a business expense.
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