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taxation by use of large deductions that were available to
Intrastate. Respondent also argues, with respect to petitioners'
alternative argument, that neither section 162 nor section 212
lets petitioners deduct the $497,667 amount.
Turning first to petitioners' primary argument, we agree
with respondent. Our detailed review of the record persuades us
that petitioners' 1989 gross income includes the full amount of
the Net Settlement Proceeds. We look to petitioners' outward
manifestations with respect to these proceeds, and we see that
they received these proceeds on February 28, 1989, without any
restricted use. Petitioners deposited the check into their
personal account, and they used the proceeds for several months
before transferring any money to Intrastate. Petitioners
transferred the money to Intrastate in several installments that
extended over a period of 4 months, rather than through a lump
sum at or near the date of settlement, and the first installment
was carefully crafted to fall within Intrastate's taxable year
beginning July 1, 1989. If part of the settlement proceeds
belonged to Intrastate, as petitioners contend, it was entitled
to its share immediately upon settlement. Yet, petitioners
controlled all the proceeds, even investing at least $197,500 of
the Net Settlement Proceeds in their personal brokerage account,
exposing this amount to the same risks as their personal
investments.
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