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attorney, Mr. Conner, to review Mr. Dougherty’s memorandum of
August 11, 1995, and assemble all the documents showing damage to
his reputation.
Petitioner also contacted his attorney, Brett Dixon (Mr.
Dixon), to review the tax issues related to the settlement. By
memorandum dated August 15, 1995, Mr. Dixon stressed the
importance of inserting language into the Implementing Agreement
which would reflect that the $12 million payment was for
petitioner’s actual personal and/or physical injury. He wrote:
In light of the punitive-versus-actual damages issue we
discussed with respect to the $12 million payment in
settlement of the litigation, I think it is important
to try to get language into the Implementing Agreement
to the effect that the payment is being made in respect
of actual personal injury (defamation, libel, slander,
emotional distress) that you suffered as a result of
this matter. It would also be helpful if you could
document any physical injury or illness you suffered
(severe emotional distress requiring treatment, etc);
this would provide an alternative basis for exclusion
(i.e., even if the personal injury damages are
punitive, they relate to a physical condition).
[Emphasis added.]
Mr. Dixon further suggested that petitioner include “in the
Implementing Agreement a covenant that the partics [sic] will
respect the allocation between the different elements of recovery
for all tax purposes.” As late as August 16, 1995, Mr. Dixon was
still finalizing the language he believed would be ideal for
petitioner to include in the Implementing Agreement. In his
memorandum to petitioner of that date, Mr. Dixon suggested the
following language be included in any final agreement:
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