Madeline A. Coblenz and William J. Mason - Page 12

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          subject to the settlement agreement and its effective date, a               
          “Recitals” section outlining relevant facts, and a                          
          “Consideration” section providing the benefits and obligations of           
          each party.  In the Consideration section, petitioner’s attorneys           
          included a statement that the settlement proceeds were in                   
          satisfaction of petitioner’s claims for personal injuries,                  
          “within the meaning of title 26, section 104, of the United                 
          States Code”, resulting from the alleged tortious conduct by                
          First City Bank (the section 104 sentence).8                                
               The FDIC attorney was surprised by the inclusion of the                
          section 104 sentence.  After reading section 104, the FDIC                  
          attorney concluded that only settlement proceeds on account of              
          physical injuries were excluded from gross income.  Therefore, he           
          requested that the section 104 sentence be removed.                         
               By September 12, 1995, the parties9 produced a final draft             
          of the settlement agreement (final settlement agreement).  In the           
          final settlement agreement, the section 104 sentence was removed.           
          The Recitals section stated, among other things, that “Mason then           
          commenced an action * * *, alleging various tort claims based on            

               8  Around this period in September 1995, Mr. Cantrell                  
          provided Mr. Simon an opinion that the settlement proceeds were             
               9  Although FCLT, the purchasing corporation, and Madeline             
          Coblenz (petitioner’s wife) were not named parties in                       
          petitioner’s lawsuit, the settlement agreement referred to them,            
          in addition to the FDIC and petitioner.                                     

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