Walter E. Hess and Helen L. Hess - Page 17

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               In a setting such as this, where the parties to a settlement           
          agreement fail to reflect their agreement accurately in a written           
          document, we will not accept the allocation set forth in that               
          document.  That petitioner may have wanted the payment to be                
          characterized as compensation for a tortlike personal injury does           
          not govern the taxation of the payment for purposes of section              
          104(a)(2).  The taxability of the payment, as discussed above,              
          turns on the payor's intent.  Because none of the $425,000                  
          payment compensated petitioner for a tortlike personal injury, we           
          hold for respondent on this issue.  None of the $425,000 payment            
          is excludable under section 104(a)(2); i.e., the payment is fully           
          taxable under section 61(a).  As conceded by respondent as a                
          result of this holding, petitioner may deduct for 1992 $95,274 of           
          legal expenses connected with the lawsuit.                                  
          2.  Deduction of Long-Term Capital Loss                                     
               Petitioner must disprove respondent's determination that he            
          may not deduct his reported capital loss of $170,040.  Rule                 
          142(a); Welch v. Helvering, 290 U.S. at 115.  Deductions are a              
          matter of legislative grace, and petitioner must show that his              
          claimed loss falls within the terms of the statute.  New Colonial           
          Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).  Petitioner                 
          argues that he may deduct the loss because he lost the exclusive            
          sales territory that he purchased from Mr. Myers.                           

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