Fred E. Hudspeth v. Commissioner of Internal Revenue Service

TEVRIZIAN, District Judge:

PRELIMINARY STATEMENT

This ease presents questions concerning the proper interpretation of the tax benefit rule and Federal Rule of Evidence 408. We hold that the tax court properly construed the tax benefit rule. However, the tax court erroneously excluded certain evidence that should have been admitted under the bias exception to Federal Rule of Evidence 408.

FACTS

The appellants are shareholders of Hud-speth Pine, Inc., which, during the period relevant to the present case, was a validly electing Subchapter S corporation pursuant to Subchapter S of the Internal…