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million for the defamation claim and $2 million plus the back-end
payments for the breach of contract claim. At the time of the
settlement, the back-end payments were estimated to be worth
approximately $2 million. This meant that at the time of the
settlement (and allocation), the parties allocated only 50
percent (10 percent less than petitioner initially sought) to the
defamation claim. By the time of trial, the back-end payments
significantly exceeded $2 million and were continuing to be made
to petitioner. Accordingly, even less than 50 percent of the
settlement actually was allocated to the defamation claim.
Upon the basis of all the facts and circumstances, we
believe that UTA intended that the $4 million UTA paid petitioner
pursuant to the defamation agreement was to settle petitioner’s
defamation claim and that this amount was appropriately allocated
to this claim.
At the end of the trial, respondent conceded that if we
respected the allocation of the settlement, then the May 1996
payment is excludable from income pursuant to pre-SBJPA section
104(a)(2). Accordingly, this resolves petitioner’s 1996 tax
year.25
25 Respondent’s concession also means that there is no
understatement or underpayment for 1996. Accordingly, petitioner
is not liable for the sec. 6662 penalty for 1996. Secs. 6662(a),
(d), 6664(a).
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