- 28 -
of such proceeds would not be includible in DCI's gross income,
but would be includible in the gross income of the person to whom
the District Court awarded such portion; and DCI would not be
entitled to deduct any portion of the proceeds of the Farmers
lawsuit that is at issue.19 If we were to find that the District
Court awarded all of the proceeds of the Farmers lawsuit to DCI,
all of those proceeds would be includible in DCI's gross income
for the year at issue. In that event, we would have to address
DCI's alternative contention that, because of a purported agree-
ment entered into between DCI and the Diamonds pursuant to which
DCI was to pay a portion of the proceeds of the Farmers lawsuit
to the Diamonds, it is entitled to the deduction that it claimed
under section 162 for the year at issue.
We turn first to whether the District Court awarded all, or
only a portion, of the proceeds of the Farmers lawsuit to DCI.20
In deciding that question, we shall focus on the District Court's
opinions and judgments in the Farmers lawsuit, the pretrial order
submitted in that lawsuit, and certain evidence presented at the
19 See supra note 16. We acknowledge that, for a given taxable
year, including an item in gross income and then deducting a
portion of it will generally produce the same result reached by
excluding that portion from gross income and deducting no portion
of the item in question. However, we must reach that result by
following the path mandated by the facts that we have found and
the applicable law.
20 Although there was a dispute at trial as to whether respon-
dent's answer raised a new matter and altered the burden of
proof, our determinations are made on the record without regard
to that question.
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