Diamond Claims & Investigation Services, Inc. - Page 36

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               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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