Dr. Tooth is a 40-year-old dentist in Small Town, USA. He graduated from dental school five years ago and has had a thriving practice ever since. At the end of last year, however, Dr. Tooth had an ugly billing disagreement with a patient. The patient, a well-known wealthy entrepreneur, in retribution, maliciously spread a rumor that Dr. Tooth was a carrier of a serious infectious disease. This rumor destroyed Dr. Tooth's patient base, as most of his patients quickly switched dentists. As a result of the stress of losing his business, the cruel gossip that resulted from the rumor, and the financial strain caused by this situation, Dr. Tooth began to suffer from severe migraine headaches, loss of appetite, and significant facial twitches. Dr. Tooth sued the patient for defamation and intentional infliction of emotional distress. He won a jury verdict and has since recovered $3,600,000 in damages from the patient. Dr. Tooth has asked you to determine the appropriate tax treatment of this award.
a. What additional questions do you need to ask Dr. Tooth before you begin your research?
b. What additional potential sources of information should you ask for?
c. Which of the preceding facts are relevant? Which are irrelevant?
d. Is there a chance that you will need to ask more questions at a later point? Why or why not?
e. What is the first question you will try to answer in your research? Are there any additional issues that you can identify at this time?