Lance R. and Elaine C. LeFleur - Page 21

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            reflect the realities of petitioner's underlying claims.  As                              
            discussed above, neither party had any interest in ensuring that                          
            the allocation language accurately represented the risks of the                           
            various claims.                                                                           
                 The attorneys for both sides felt that petitioner's contract                        
            and fraud claims were the strongest, and his tort claim of                                
            outrageous conduct among the weakest.  Blount especially feared a                         
            runaway jury on punitive damages in the event that the case were                          
            remanded to State court, since Alabama juries were "known" for                            
            their large punitive damages awards.  Despite the foregoing, the                          
            settlement agreement allocated 80 percent of the lump-sum                                 
            proceeds to personal injury claims, only 20 percent to the                                
            contract claim arising out of the April 27 letter, and nothing                            
            whatsoever to the fraud claims and punitive damages claims.                               
            Thus, in contrast to McKay v. Commissioner, supra, the settlement                         
            agreement was not based on counsels' estimates of the probability                         
            of success on the merits had the case gone to trial.  See McShane                         
            v. Commissioner, T.C. Memo. 1987-151.  Moreover, we note that,                            
            unlike McShane v. Commissioner, supra, the tax effects of the                             
            allocation were considered by petitioner during the negotiations                          
            on December 2, 1991.                                                                      
                  Contrary to petitioners' request, we shall not blindly                              
            accept the parties' allocation of settlement proceeds where, as                           
            here, the allocation is patently inconsistent with the realities                          
            of the underlying claims as determined by the attorneys for both                          

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