Ralph W. Emerson and Suzanne O. Emerson - Page 17

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          determining tax liabilities.”  Fono v. Commissioner, supra at               
          695.  The allocation in this case is indistinguishable from                 
          numerous cases denying such retroactive tax planning.  See                  
          Robinson v. Commissioner, supra at 133-134; Banks v.                        
          Commissioner, T.C. Memo. 2001-48; Burditt v. Commissioner, T.C.             
          Memo. 1999-117.  When the allocation language sought by a                   
          taxpayer is entirely tax motivated and does not reflect the                 
          economic realities of the settlement, the Court refuses to accept           
          the characterization made by only one of the parties to the suit.           
               Based on the record, we cannot hold that the settlement                
          amount or any part of it was paid on account of personal injury.            
          The record compels the conclusion that the reference to personal            
          injuries in the settlement documents was an afterthought, solely            
          in anticipation of tax benefits, and did not reflect the nature             
          of the claim by petitioner against ProGuard.  We therefore hold             
          that the entire settlement amount is includable in petitioners’             
          gross income.                                                               
          Self-Employment Tax                                                         
               Respondent contends that the entire settlement amount,                 
          including the cancellation of indebtedness, is subject to self-             
          employment tax under section 1401 because the amount received was           
          compensation for services under petitioner’s employment contract.           
          Respondent claims that the defendants could have paid to                    
          petitioner an increased cash amount, with which petitioner could            

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