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The taxing authorities and the courts will look to the following factors, among others, in determining the tax consequence of litigation:(1) the total amount sought; (2) the various claims made; (3) the evidentiary proof surrounding each claim; and (4) the settlement document or judgment, possibly to discern the allocation of the recovery for each claim. (However, how the settlement document allocates recovery process, e.g. whether as “compensatory” or “punitive”, is non-binding on tax authorities).
