In 1990, brothers Peter and Mitchell jointly bought a warehouse that they rented out to commercial tenants. The total cost for the warehouse was $200,000. In 2011, at Peter's trial in a Tax Court proceeding, Peter accused Mitchell of attacking and punching him on several occasions as well as poisoning him by pouring bleach into his morning coffee. Conversely, Mitchell stated at trial that Peter had left him to work at the warehouse while Peter went out to baseball games. In late 2002 Peter sued his brother Mitchell in state court for partition, breach of contract, breach of implied covenant of good faith and fair dealing, fraud, and negligent misrepresentation in connection with their joint interests in the warehouse. On December 1, 2004, the brothers settled the case. Pursuant to the settlement agreement, the brothers agreed to sell the warehouse, now worth $1 million, and divide the net proceeds equally. Moreover, the agreement instructed Mitchell to pay $100,000 from his share of the net proceeds to Peter.
Write a memorandum to Peter describing how much he will recognize under the settlement agreement (assuming real estate broker fees and all other closing costs of 5 percent) and the appropriate federal income tax treatment to him. Cite appropriate statutory authority in your response. Hint: search for and read the Tax Court's recent opinion in Reesink v. Commissioner, T.C. Memo. 2012-118. It may be helpful in at least part of your analysis.