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settlement documents was consistent with the agreement reached by
UTA and petitioner.
The final settlement documents were negotiated back and
forth between petitioner’s and UTA’s attorneys. The allocation
was negotiated before Mr. Cohen, petitioner’s tax counsel,
prepared the settlement documents, and these documents reflected
the settlement that had already been negotiated between
petitioner and UTA.
Respondent argues that the following language contained in
the April 24, 1996, letter proves that the allocation was not
arm’s length or adversarial:
UTA will cooperate with Mr. Polone in his efforts to
obtain the most favorable tax treatment for the
payments described above, and in the event that UTA
incurs liability due to a challenge by the IRS of tax
treatment requested of UTA by Mr. Polone, Mr. Polone
will indemnify UTA.
Given the acerbic relationship between petitioner and UTA, it is
understandable why this language was inserted into the April 24,
1996, letter. Witnesses credibly testified that petitioner
feared that UTA would attempt to sabotage the legitimate tax
treatment petitioner was entitled to under the defamation
agreement.
We note that petitioner’s attorneys testified that they
estimated the breach of contract claim to be worth $8 million and
the defamation claim to be worth $12 million--i.e., that 60
percent of the total damages should be allocated to the
defamation claim. The parties settled upon an allocation of $4
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