- 36 -
Based on our examination of the entire record in this case,
we find that the District Court awarded a portion of the proceeds
of the Farmers lawsuit to DCI and a portion of those proceeds to
the Diamonds as the owners of ETS.25 Consequently, only the
portion of such proceeds that the District Court awarded to DCI
is includible in its gross income for the year at issue.26
The remaining question that we must resolve, which also is
factual, is what are the respective amounts of the proceeds of
the Farmers lawsuit that the District Court awarded to DCI and to
the Diamonds as the owners of ETS.27 In resolving that question,
25 Respondent contends that no portion of the proceeds of the
Farmers lawsuit was awarded to the Diamonds as the owners of ETS
because there is no indication that there was a contractual
relationship between FIG and the Diamonds as the owners of ETS.
We reject that contention. The pretrial order alleged that the
plaintiffs were parties to the agreement at issue in the Farmers
lawsuit, that the Diamonds were entitled to lost profits from the
operations of ETS as a result of FIG's breaches of contract and
fraudulent misrepresentations, and that the Diamonds were enti-
tled to punitive damages as a result of FIG's fraudulent misrep-
resentations. The District Court entered a default judgment in
favor of, and awarded damages to, all the plaintiffs (viz., DCI
and the Diamonds) on account of their claims against FIG for
breaches of contract and fraudulent misrepresentations.
26 In light of our finding that the District Court awarded a
portion of the proceeds of the Farmers lawsuit to DCI and a
portion of such proceeds to the Diamonds as the owners of ETS, we
shall not address DCI's alternative contention, which we under-
stand DCI would advance only in the event that we had not made
such a finding, that it is entitled to deduct the $450,245 of the
proceeds of the Farmers lawsuit that it claimed in its return for
the year at issue because that is the amount that DCI was obli-
gated to pay the Diamonds under an agreement entered into between
them.
27 We disagree with petitioner's suggestion on brief that re-
(continued...)
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