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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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