- 16 - Although the settlement agreement recites petitioner’s desired characterization of the entire settlement proceeds as “payment for personal injury damages suffered after plaintiff’s discharge on July 14, 1986”, we, unlike petitioner, do not accept that statement as a binding characterization of the settlement proceeds. In Robinson v. Commissioner, 102 T.C. 116 (1994), the taxpayers sued a State bank for failing to release a lien on their property. After the jury returned a verdict in their favor for approximately $60 million, including $6 million for lost profits, $1.5 million for mental anguish, and $50 million in punitive damages, the parties to that proceeding settled. In the final judgment reflecting the settlement, which was drafted by the parties and signed by the trial judge, 95 percent of the settlement proceeds was allocated to mental anguish and 5 percent was allocated to lost profits. We held that this allocation did not control the taxability of the proceeds to the taxpayers. We noted that the allocation was "uncontested, nonadversarial, and entirely tax motivated", and that it did not accurately "reflect the realities of * * * [the parties'] settlement." Id. at 129; accord Hess v. Commissioner, T.C. Memo. 1998-240. The same is true here. While the underlying litigation was certainly adversarial, the parties were no longer adversaries after they agreed on a settlement in principle. PetitionerPage: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
Last modified: May 25, 2011