Diamond Claims & Investigation Services, Inc. - Page 28

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          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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