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specifying how much of those proceeds it was awarding to each of
those plaintiffs. In its return for the year at issue, DCI
included in its gross income all the proceeds of the Farmers
lawsuit and deducted as "CONTRACT SERVICES" $450,245. In their
joint return for 1988, the Diamonds included that $450,245 as
gross receipts.
DCI contends that it is entitled to the full amount (i.e.,
$450,245) of the deduction that it claimed for "CONTRACT SER-
VICES" because: (1) The Diamonds were the plaintiffs in the
Farmers lawsuit in their capacity as the owners of ETS; (2) the
proceeds of the Farmers lawsuit included damages that the Dis-
trict Court awarded to the Diamonds in that capacity; and (3) the
proceeds of the Farmers lawsuit that were allocated to the
Diamonds represented their share of the total proceeds of that
lawsuit. In the alternative, DCI contends that it is entitled to
the full amount of the deduction in question because DCI and the
Diamonds entered into an agreement under which the Diamonds
agreed, inter alia, to refrain from instituting a lawsuit against
DCI for breach of contract in return for DCI's agreement to pay
the Diamonds their share of the proceeds of the Farmers lawsuit.
Respondent counters that DCI is not entitled to $411,086 of
the deduction that DCI claimed for "CONTRACT SERVICES" because
15(...continued)
the proceeds of the Farmers lawsuit shall be to those proceeds
that remain at issue.
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