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payment of an agreed amount for personal injury would be
problematic. In a memorandum to petitioner, the firm wrote:
Where a settlement payment is only partially in
payment for tortious injury, the burden of proof is on
the recipient to show the amount paid for the tort.
Frank, 22 T.C. 945 (1954), [affd. 226 F.2d 600 (6th
Cir. 1955)]. Allocations in a settlement agreement are
respected if they are reasonable. In Seay, 58 T.C. 32
(1972), acq. 1972-2 CB 3, the taxpayer received payment
for breach of contract and for personal injuries from
embarrassing publicity. A letter confirming the
apportionment of funds attributable to personal injury
signed by negotiators on both sides was held to have
established the amount that was attributable to
personal injury. [Emphasis added.]
The record is devoid of any evidence helpful to petitioners of
the type suggested by petitioner’s counsel.
Mr. Dougherty noted that one of petitioner’s problems would
be “sustaining the bona fides of the allocation if challenged.
Allocations to personal injury recoveries will be respected if
made in an adversarial context, at arm’s length, and in good
faith.” Mr. Dougherty cited Knuckles v. Commissioner, 349 F.2d
610 (10th Cir. 1965), affg. T.C. Memo. 1964-33, as an example
where exclusion from gross income was denied when counsel
“pressed for an allocation to personal injuries late in the
settlement negotiations to get a better tax result”.
Both the Settlement Term Sheet and the Implementing
Agreement provide for a “global release” of petitioner’s claims
against Ormet. Yet, none of the settlement documents earmarked a
specific amount exclusively for petitioner’s personal injuries
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