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taxpayer whose obligation is satisfied.” Sinyard v.
Commissioner, supra at 760.
We also note that Merten did not pay any of his $3,864,012
to the State of Oregon under Or. Rev. Stat. sec. 18.540 (1991),
which claims a percentage of all punitive damages awards. Under
Fee Agreement II, Merten’s fee was to come out of the punitive
damages. The settlement proceeds replaced the jury verdict.
Therefore, if Merten were a real party in interest with respect
to that $3,864,012 settlement, and did not receive it instead to
discharge petitioner’s obligation to compensate him for services
rendered, Merten should have paid the State of Oregon a portion
of his proceeds.
Consequently, we hold that the portion of the damages,
$3,864,012, paid directly to petitioner’s attorney is includable
within petitioner’s gross income.
III. Constitutionality
Petitioner claims that respondent’s determination violated
his constitutional right against a Government taking without due
process of law or just compensation. Petitioner points out, that
after attorney’s fees, the Federal alternative minimum tax, and
the State of Oregon tax, he would be left with only $1,984,078.
This amount is 22.7 percent of the total settlement of
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