Talley Industries, Inc. and Consolidated Subsidiaries - Page 2




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          and adopts the opinion of the Special Trial Judge, which is set             
          forth below.                                                                
                         OPINION OF THE SPECIAL TRIAL JUDGE                           
               PANUTHOS, Chief Special Trial Judge:  This matter is before            
          the Court on remand from the Court of Appeals for the Ninth Circuit.        
          See Talley Indus., Inc. & Consol. Subs. v. Commissioner, 116 F.3d 382       
          (9th Cir. 1997), revg. and remanding T.C. Memo. 1994-608.  In Talley        
          Indus., Inc. & Consol. Subs. v. Commissioner, T.C. Memo. 1994-608, we       
          granted petitioner's motion for summary judgment in part--holding           
          that petitioner was entitled to a deduction of $2.5 million (less           
          $1,885 which was characterized as a "fine" pursuant to criminal             
          charges) reflecting the amount that petitioner paid to the                  
          Government to settle its civil liability for submitting false claims        
          under certain Federal contracts.  The Court of Appeals reversed and         
          remanded the case on the ground that "a genuine issue of material           
          fact exists as to the characterization and the purpose of the               
          $940,000 portion of the settlement."  Talley Indus., Inc. & Consol.         
          Subs. v. Commissioner, 116 F.3d at 387.  The Court of Appeals               
          summarized the matters to be decided on remand as follows:                  
               If the $940,000 represents compensation to the                         
               government for its losses, the sum is deductible.  If,                 
               however, the $940,000 represents a payment of double                   
               damages [under the False Claims Act], it may not be                    


          1(...continued)                                                             
          in effect for the year in issue, unless otherwise indicated.  All           
          Rule references are to the Tax Court Rules of Practice and                  
          Procedure.                                                                  




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