Opinion ID: 2600653
Heading Depth: 4
Heading Rank: 3

Heading: Other Factors Demonstrating the Parties' Intent Regarding the Settlement Proceeds

Text: ¶ 30 Other evidence also indicates that the Mandells viewed the settlement proceeds as income from the sale of HAU. The first such evidence is the Mandells' treatment of the proceeds on their 2001 federal income tax return, on which they reported the settlement as a long-term capital gain on the sale of Mandell's 20% interest in HAU. Similarly, the testimony of the accountant who prepared the return established that the settlement proceeds were treated as capital gains, rather than ordinary income, because they were earnings from the deemed asset sale in 1998. ¶ 31 The second such evidence is the amount of the settlement payment. The settlement amount is similar to the amount Mandell would have received in 1998 had Whitworth paid the amount Mandell contends was owing. While Mandell should have received $1,671,000 from the original sale of HAU, he received only $621,000. The settlement proceeds of $1,127,977 increased the total proceeds received to $1,748,977, just slightly more than the amount to which Mandell was originally entitled. This similarity between the two amounts further suggests that the proceeds were received in lieu of amounts payable in connection with the original sale of HAU. See Sager Glove Corp. v. Comm'r, 311 F.2d 210, 212 (7th Cir.1962) (considering fact that recovery sought for lost profits closely approximated the settlement amount in determining the character and nature of the settlement). ¶ 32 In summary, having applied the in lieu of test, we conclude that the settlement proceeds were paid in lieu of the funds that Mandell should have received from the 1998 sale of HAU. The Mandells' attempt to distinguish the settlement proceeds from the original sale is unavailing. Whitworth's apparent intent, Mandell's characterization of his claim in the underlying litigation, the Mandells' treatment of the settlement on their federal income tax return, and the amount of the settlement are all consistent with the Commission's determination that the settlement was paid to reimburse the Mandells for the proceeds Mandell should have received in connection with the original sale of HAU.