Lance R. and Elaine C. LeFleur - Page 18

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                  In Bagley v. Commissioner, supra at 410, we concluded that                          
            the express allocation of $1.5 million as damages for personal                            
            injuries provided for in the settlement agreement was not                                 
            controlling, and we determined that $500,000 of that sum was to                           
            be allocated as punitive damages.  The payor's primary concern                            
            was to pay as little as possible to dispose of all claims of the                          
            taxpayer.  Moreover, we noted that it was clearly in the interest                         
            of both parties not to allocate an amount to punitive damages,                            
            despite the fact that the record showed that both parties had                             
            considered the strong possibility of petitioner's recovering                              
            punitive damages.  Both parties worked on the terms of the                                
            settlement document, and the taxpayer had consulted a tax                                 
            attorney concerning the allocation of the settlement proceeds.                            
                  In contrast with Robinson v. Commissioner, supra, and Bagley                        
            v. Commissioner, supra, in McKay v. Commissioner, supra, we found                         
            that the settlement was made by hostile parties who continued to                          
            be adverse with respect to the allocations to be made therein.                            
            We noted that the "allocation of the settlement proceeds between                          
            the wrongful discharge tort claim and the breach of contract                              
            claim was based on * * * counsels' estimates of probability of *                          
            * * success on the merits, recognition of the jury verdict, and                           
            mutual assessment of the total and relative values of the                                 
            claims."  McKay v. Commissioner, supra at 472.                                            
                  In McKay v. Commissioner, supra, while the taxpayer wanted                          
            the settlement award to be as high an amount as possible to                               

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