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claim; specifically, they assert, Pacific Bank also received
clear title to the Crown life policy. We find this argument
unpersuasive. Although the settlement may have removed a cloud
on the title of the Crown life policy, the settlement represented
only the extinguishment of the lawsuit claim and did not operate
to convert the character of the $500,000 proceeds received. In
return for its payment of the $500,000, Pacific Bank received the
extinguishment of petitioners’ claim concerning the Crown life
policy and nothing more. In fact, the Crown life policy both
before and after the settlement states specifically that Pacific
Bank is the owner of the policy. We conclude that the $500,000
was received by petitioners in extinguishment of a claim, as
opposed to the sale or exchange of a capital asset and thus is
taxable as ordinary income.
We have considered all arguments by petitioners for a
holding contrary to that which we reach herein. To the extent
not discussed, we conclude that those arguments are irrelevant or
without merit.
Decision will be entered
under Rule 155.
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Last modified: November 10, 2007