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grounds for relief and/or damages, including bad faith and
punitive damages.
In the settlement of the suit, petitioners released any
rights they may have had for all claims stated and for possible
future claims arising from their relationship with the insurance
company on this matter. The terms of the settlement did not
specify any particular grounds for which the payment was made.
In pursuing the question of whether the settlement was
taxable, petitioners seemed to focus on the fact that the cost of
repair approximated the total recovery from all sources. When
respondent questioned whether the amount received was for
punitive damages, petitioners presented the Appeals officer with
repair receipts in an effort to demonstrate that they had spent
the funds received for repairs to the home. Petitioners have
continued this approach in disputing the deficiency and emphasize
this aspect in their present motion. Conversely, respondent has
focused on the fact that petitioners’ claims and settlement with
their insurance company may have been for punitive damages.3 The
parties’ arguments have gone off on different tangents.
3 Respondent did argue about the expenditures as a
secondary matter. Respondent questioned whether some of the
expenditures by petitioners were improvements, rather than
replacement and repairs. In the Court’s analysis, we found that
there were some improvements, as respondent contended, but we
found them to be de minimis. For example, petitioners added air
conditioning to their replacement heating unit. This aspect adds
some justification for respondent’s position.
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Last modified: May 25, 2011