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DCI paid that amount to the Diamonds as a dividend.16
The parties frame the central issue that we must resolve as
necessarily implicating section 162.17 We assume that that is
because, 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. We disagree with the parties'
framing of the main issue that we must resolve as necessarily
implicating section 162.18 As we see it, the critical question
that we must decide is the factual issue of whether the District
Court awarded all, or only a portion, of the proceeds of the
Farmers lawsuit to DCI. If we were to find that the District
Court awarded a portion, and not all, of the proceeds of the
Farmers lawsuit to DCI, only that portion would be includible in
DCI's gross income for the year at issue; the remaining portion
16 Although respondent does not offer any explanation as to why
she conceded $39,159 of the $450,245 deduction that DCI claimed
in its return for the year at issue, we shall not disturb that
concession.
17 All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
18 Nor are we bound by DCI's treatment of the proceeds of the
Farmers lawsuit in its return for the year at issue. Although,
as respondent suggests, DCI's inclusion in that return of all of
those proceeds might be construed as an admission by DCI that the
Diamonds were not awarded any damages in the Farmers lawsuit in
their capacity as the owners of ETS, we do not take it as such.
This is because, inter alia, DCI also claimed in that return a
deduction of $450,245, the portion of those proceeds received by
the Diamonds in their capacity as the owners of ETS pursuant to
Mr. Donnelly's recommendation.
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