Research Memorandum #1

Applicable Tax Year 2019

Barton Fink was a 21 year old accomplished violinist, appearing as a soloist with many of the world's leading ensembles. "Rolling Stone" calls him "one of the world's most acclaimed classical musicians."

On a recent commuter train trip to a nearby Chicago suburb to take violin lessons, Barton exited the train with his belongings which included a violin valued at $500,000. As he exited, the violin case got stuck on the handrails in the vestibule and the doors began to close. The violin was completely destroyed. He purchased the violin 8 years ago (purchase price of $500,000), and has fully depreciated its cost. The violin is an asset used in Barton's business. Fortunately, he had insurance on the violin, and the insurance company paid Barton $500,000 shortly after the accident. Barton did not reinvest the proceeds in a violin, but instead added the funds to his stock portfolio.

Unfortunately, the violin's destruction was not the only result of the event. With the violin stuck in the doors and his shoulder pinned to the outside of the doors, a tragic accident began to unfold. The train began to move and Barton stumbled and fell. He began to run alongside the train, failing to release himself from the violin strap. Ultimately, he was dragged by the train, finally freeing himself from the straps. Rolling on the gravel under the train, the train severed his lower left leg and the right leg was badly mutilated.

After numerous surgeries, medical appointments, prosthetic fittings and physical rehabilitation sessions, which caused him to incur significant medical expenditures, he decided to engage a personal injury attorney to sue the commuter train company.

At the end of a lengthy trial, verdict and subsequent appeal, Barton was awarded the following:

• $9 million for disability
• $8 million for disfigurement
• $10 million for pain and suffering
• $100 thousand for lost wages
• $2 million for medical expenses
• $900 thousand for punitive damages

His attorney received one-third of the total award based on a contingent fee, $10 million.

Engaged by Barton Fink's legal counsel, you have been asked to provide tax advice in the form of an opinion memo and "other written advice" regarding the tax implications of the event. Please prepare an internal memo for the firm's file and managing partner.

I only need the advice for Fink and tax code to back it up. The state is Illinois just so you might need it.