Opinion ID: 198101
Heading Depth: 2
Heading Rank: 1

Heading: The Rozpads.

Text: 4 Kathleen Rozpad underwent surgery in 1989, with less than auspicious results. She and her husband sued the surgeon in a Rhode Island state court. In 1992, a jury awarded Mrs. Rozpad $2,000,000 in damages and also awarded $65,000 to her husband. The trial court reduced Mrs. Rozpad's award to $650,000, and she agreed to remit the excess. The court then entered a final (but reviewable) judgment for $965,250, which included $250,250 in prejudgment interest mandated by R.I. Gen. Laws § 9-21-10 (1985). 5 During the appeal period, the Rozpads and the surgeon negotiated a global settlement for $800,000 without any discussion of, or reference to, tax consequences. They filed a stipulation with the court which recited that [t]he above-entitled action is hereby dismissed, no interest, no costs. After payment of attorneys' fees and costs, the Rozpads netted $438,887.13. They reported no portion of the settlement on their 1992 federal income tax return. 6 In 1994, the Commissioner issued a notice of deficiency, asserting that a portion of the settlement constituted taxable prejudgment interest and should have been so reported in 1992. 7