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brief and rudimentary in format, and did not specify the
designation of the compensatory damage payments. According to
Teal’s recollection at trial, she perceived of the
characterization of the disputed settlement amount as outside the
scope of the controversy between the District and petitioner.
Teal had been informed that the settlement allocation did not
present any potential adverse ramifications for the District
because, irrespective of the express settlement allocation, the
District would defer to respondent’s ultimate determination of
the applicability of the section 104(a)(2) exclusion.
Petitioner asserts that the characterization of the disputed
settlement amount was the result of quid pro quo negotiation
because petitioner’s municipal income tax liability, derived from
his computation of adjusted gross income for Federal income tax
purposes, would be correspondingly lower if the section 104(a)(2)
exclusion applied. The record contains no evidence, however,
that Teal was ever cognizant of or considered such diminishment
to the District’s municipal fisc.
Petitioner argues that the $31,750 designated as attorney’s
fees reimbursement is distinguishable from the remainder of the
disputed settlement amount because the attorney’s fees payment
was remitted directly to petitioner’s counsel. (Respondent
concedes, though, that the attorney’s fees compensation is
deductible as a miscellaneous itemized deduction.) The Supreme
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