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On December 6, 1993, Balfour issued petitioner a check for
$425,000, and it issued his attorneys a check for $125,000.
Balfour later issued petitioner a Form 1099-MISC, Miscellaneous
Income, reflecting the settlement payment, and it deducted the
settlement amount on its Federal income tax return as a
commission expense.
Petitioner's 1992 Form 1040 claimed a deduction for legal
fees of $95,274 from the Balfour litigation. His 1993 Form 1040
did not report any of the settlement payment as income, claiming
that it was nontaxable. The 1993 Form 1040 claimed a long-term
capital loss of $170,040 in connection with petitioner's
termination of employment from Balfour.
Respondent determined that section 104(a)(2) did not apply
to exclude the $425,000 payment from petitioner's 1993 gross
income. Respondent also determined that petitioner could not
deduct the claimed loss because: (1) He had not established his
basis in the underlying asset and (2) he had not established that
his right to sell products in New York City became worthless
during 1992 or 1993.
OPINION
1. Taxability of Settlement Proceeds
We must decide whether petitioner received any of the
settlement proceeds on account of a personal injury. To the
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