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a second payment of $100,000 on May 15, 1994 (lump-sum payments).
Petitioner excluded the lump-sum payments from gross income as
damages received on account of personal injuries.
The Liquidation Payment
Under paragraph 5(a) of the settlement agreement, Okabena
agreed to pay petitioner $516,907 for his interests in several
Okabena investment entities (liquidation payment). Okabena made
the required payment in 1993. Petitioner excluded the
liquidation payment from gross income as damages received on
account of personal injuries.
The Tax Clause
The settlement agreement also contained the following
provision with respect to the tax treatment of the payments made
to petitioner pursuant to the settlement agreement:
7. Payment of Taxes. The parties expressly
acknowledge that the payments to be made to Gross under
subparagraph 3(b) of this Agreement [the lump-sum
payments] are intended solely as compensation for
claimed damages on account of alleged personal injuries
arising from an occurrence within the meaning of
Section 104(a)(2) of the Internal Revenue Code, the
administrative regulations promulgated thereunder, and
applicable case law. No part of the payments to be
made to Gross under subparagraphs 3(b) or 5(a) [the
liquidation payment] is allocable to punitive damages,
compensation for other claimed damages, or interest
thereon. The Company makes no representation or
warranty to Gross or his attorneys regarding the tax
treatment or consequences of any payment made to Gross
under this Agreement by the Internal Revenue Service or
any other tax authority. Gross will be solely
responsible for the payment of any and all taxes of
whatever kind that may be due or payable from him in
connection with any payment made to him under this
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