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“reality” of the settlement, and the court must discern, based on
all the facts and circumstances surrounding the settlement, “in
lieu of what” the settlement amount was paid. Robinson v.
Commissioner, supra at 126; see also Bagley v. Commissioner,
supra at 406.
It is beyond dispute that Indeck and Mr. Polsky entered the
Settlement Agreement in an adversarial context at arm’s length.
The parties were tax adverse with respect to the characterization
of any portion of the settlement payment as interest versus
purchase price, as Indeck’s ability to deduct the payment, and
Mr. Polsky’s recognition of it as ordinary or capital income,
depended upon such characterization. As outlined in our previous
discussion of the evolution of the written terms of their
agreement, the effort by Indeck’s attorneys to label the
$15,030,000 portion of the settlement payment as “purchase price”
and the remainder as “interest”, and Mr. Polsky’s attorneys’
rejection of those efforts and successful proffer of language
denominating the entire payment as purchase price, convince us
that the parties considered the allocation and agreed to an
allocation of the entire payment to purchase price. Thus, the
allocation was the product of arm’s-length, adversarial
negotiations.
That leaves the question of whether the allocation reflected
the “reality” or substance of the parties’ agreement. Indeck
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