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In the McKay case the record showed that the taxpayer was never given freedom
to structure the settlement on his own. In our view, the instant case is
distinguishable from the McKay case, since there is no specific statement with
respect to punitive damages in the settlement agreement, and the parties
structured the settlement agreement by jointly participating in the drafting
of the agreement. Although this case is not exactly comparable to Robinson v.
Commissioner, supra, there are some aspects of similarity to the Robinson
case. Here, the record shows that a judgment had been entered by a jury with
respect to the libel claim, and the jury had allowed $l million of
compensatory damages and $5 million of punitive damages. The record shows
that the Court of Appeals had held the claim with respect to tortious
interference with future employment duplicative of the libel claim, but did
not reverse the jury award of $100,000 of compensatory damages and $250,000 of
punitive damages, if on retrial petitioner was unsuccessful in the libel suit.
The record further shows that the District Court had held that consideration
would be given to reinstatement of the invasion of privacy award, of $250,000
in compensatory and $1.5 million in punitive damages if on retrial petitioner
was unsuccessful in the libel suit. Therefore, $1 million was likely to be
the total petitioner would receive as compensatory damages, if on retrial he
succeeded on the libel claim. The record shows that counsel for IBP was
unwilling to have a statement made that a portion of the $1.5 million was paid
as punitive damages, and the parties agreed to a statement that the sum of
$1.5 million was paid as damages for personal injuries, including alleged
damages for invasion of privacy, injury to personal reputation, defamation,
emotional stress, and pain and suffering. However, there is no specific
statement, as there was in McKay v. Commissioner, 102 T.C. 465 (1994), that
the damages referred to were not in consideration of any amount that might
have been awarded as punitive damages had the case gone to trial. The overall
picture here clearly shows that IBP would necessarily have considered the
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