- 19 -
compensate him for his losses, he also desired that the other
party be punished for its behavior. However, the settlement
agreement stated affirmatively that no amount was paid to the
taxpayer to satisfy damages under RICO or to satisfy punitive
damages claims. The taxpayer was never given free reign to
structure the settlement allocation. See also Fono v.
Commissioner, 79 T.C. at 694 (express allocation made in an
earlier settlement agreement between Quaker Oats Co. (Quaker) and
taxpayers was upheld as one entered into at arm's length and in
good faith. The taxpayers sought an allocation of a portion of
the agreed payment to personal injury--"damages for emotional
distress"--but Quaker emphatically rejected that request.);
McShane v. Commissioner, supra (express language in settlement
agreement was respected where evidence in the record established
that the inclusion of the language in the settlement agreements
was the result of bona fide arm's-length negotiations and the tax
consequences of the settlement were "never considered in the
negotiations, but instead the settlement amounts were arrived at
solely from a consideration by each party of the risks it would
be subjected to by continuing the appeal.").
While not identical, we think that the facts of the instant
case are similar to those of Robinson v. Commissioner, 102 T.C.
116 (1994), and Bagley v. Commissioner, 105 T.C. 396 (1995), and
are distinguishable from those of McKay v. Commissioner, supra,
McShane v. Commissioner, supra, and Fono v. Commissioner, 79 T.C.
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