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in 1992, it is not necessary for petitioners to establish
physical harm. Rather, it is the intent of MEC in making the
payment that controls in this situation.
There are several facts which cause us to find that the
intent in this case is consistent with the terms of the
settlement agreement. First, the record establishes that amounts
for three key causes of action were each separately negotiated.
Second, a significant portion of the settlement was paid for
undercompensation and most of it for the option to buy Mr.
Wright’s stock. This is not a case where the entire settlement
amount was recharacterized at a late point in negotiations to
achieve a favorable tax result for the payee. Cf. Knoll v.
Commissioner, supra. A claim for emotional distress was a part
of the negotiation throughout. Third, Mr. Wright was actually
emotionally distressed because of the position taken by his
fellow shareholders and his belief that he was being defrauded.
Had his counsel been able to establish fraud in litigation
against MEC’s other shareholders, it is plausible that Mr. Wright
would have had a recovery for the intentional infliction of
emotional distress. Given these circumstances, the record simply
does not support ignoring the negotiated agreement which is the
basis for the distinct types of payments to Mr. Wright.
Thus, because the Memorandum of Agreement did not designate
the transfer of the automobiles as part of the consideration for
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