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order states clearly: “Plaintiff seeks only reinstatement, back
pay, and attorneys’ fees” and “Plaintiff has abandoned all claims
for damage relative to state tort claims, including a claim for
intentional and negligent imposition of emotional distress,
tortious interference with business relations, and defamation.”
Because petitioner was not seeking personal injury damages at the
time of settlement, we hold for respondent on this issue. None
of the settlement proceeds are excludable under section
104(a)(2).
Petitioner also contends that $150,000 of the proceeds that
he paid to his attorney as a contingent fee is excludable from
his gross income under Cotnam v. Commissioner, 263 F.2d 119 (5th
Cir. 1959), revg. in part and affg. in part 28 T.C. 947
(1957)(Cotnam), and its progeny. Cotnam excluded from a
taxpayer’s gross income the portion of a damage award paid to the
taxpayer’s attorney under a contingent fee arrangement.
We disagree that the holding of the Court of Appeals in
Cotnam or its progeny control this case. In Kenseth v.
Commissioner, 114 T.C. 399, 412 (2000), we reconsidered our view
of the Cotnam holding in light of the views as to that holding
expressed by various Courts of Appeals, including the Court of
Appeals for the Sixth Circuit Court of Appeals in Estate of
Clarks ex rel. Brisco-Whitter v. United States, 202 F.3d 854 (6th
Cir. 2000). We concluded in Kenseth v. Commissioner, supra at
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