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In key respects the circumstances here are similar to those
in LeFleur v. Commissioner, T.C. Memo. 1997-312. In LeFleur, the
taxpayer received a lump-sum settlement payment that covered both
tortlike personal damages and other damages. The settlement
agreement allocated 80 percent of the proceeds to tortlike
personal damages. Id. The evidence indicated that although the
underlying litigation was adversarial, by the time the settlement
agreement was reached, the parties were no longer adversaries.
Id. Because the payor was unconcerned with the allocation of the
settlement proceeds as between tortlike personal injuries and
other injuries, the taxpayer “in effect was able to unilaterally
allocate the proceeds” in an attempt to maximize tax advantages
for themselves. Id. Consequently, this Court refused to
“blindly accept the parties’ allocation of settlement proceeds
where * * * the allocation is patently inconsistent with the
realities of the underlying claims”. Id.; see also Bagley v.
Commissioner, supra at 406-410; Robinson v. Commissioner, 102
T.C. at 128-134; Burditt v. Commissioner, T.C. Memo. 1999-117;
Hess v. Commissioner, T.C. Memo. 1998-240 (“the characterization
of the payment in a settlement agreement (or other executed
document) * * * is not always dispositive, for example, when the
record proves the characterization inconsistent with the
realities of the settlement”).
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