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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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