Gerald P. and Abbe L. Keane - Page 8

                                        - 8 -                                         

               In this case, petitioner's interest expenses arose out of              
          the settlement of his lawsuit with DHHS.  The settlement                    
          agreement was entered into to determine the respective rights of            
          the parties as a result of petitioner's declaratory judgment                
          lawsuit.4  Petitioner correctly points out that the 1987                    
          settlement agreement is a completely new contract between                   
          petitioner and DHHS.  But the fact that a new contract has been             
          entered does not affect the nature of the claim.  We must look              
          behind this new agreement to the underlying claim which brought             
          about the settlement.  The lawsuit itself was the reason for the            
          settlement and subsequent interest payments, so we must examine             
          the underlying nature of the lawsuit to determine whether it has            
          a business origin.                                                          
               The underlying claim of the lawsuit between petitioner and             
          DHHS relates to the NHSC scholarship contract.  Therefore, the              
          interest payments were made pursuant to the settlement of this              
          contract dispute.  The NHSC contract provided that petitioner               
          would receive scholarship tuition from DHHS in exchange for his             
          promise to serve as an employee of DHHS for a term of years                 
          following graduation.  Generally, education expenditures are                


               4Petitioner argues that his primary motive in settling the             
          lawsuit with DHHS was to eliminate the chance that he would have            
          to interrupt his medical practice to perform services for DHHS.             
          The record, however, indicates that this was not a realistic                
          possibility.  DHHS sought from petitioner money damages, not                
          specific performance.                                                       




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  Next

Last modified: May 25, 2011