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After mediation, the lawsuit was concluded pursuant to a
stipulation of the parties, under which, among other things,
du Pont agreed to pay to petitioners the sum of $3,800,000.
Petitioners executed a general release and received the
stipulated payment. Five hundred thousand dollars of the
stipulated payment (the $500,000 payment) is allocable to
business reputation damages.
E. Income Tax Return
In reporting the proceeds of the lawsuit in their 1992
Federal income tax return, petitioners excluded the $500,000
payment.
III. Discussion
A. Introduction
Petitioners brought the lawsuit against du Pont, claiming
tortious injury to petitioners’ nursery business as the result of
their use of an agricultural chemical (Benlate) manufactured by
du Pont. Petitioners received $3,800,000 from du Pont in
settlement of the lawsuit, of which $500,000 is allocable to
damages on account of petitioners’ claim of injury to their
business reputation (the $500,000 payment). We must decide
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Last modified: May 25, 2011