Please explain the following question:

1)

1. Chip Spam, a computer wizard graduate of State Institute of Technology, started a new computer company, BigBytes. Chip raised money from a venture capitalist, RRK partnership, by selling RRK a $10,000,000 convertible debenture. Eventually, BigBytes went public, Chip cashed out and invested his $20,000,000 sales proceeds in a diversified portfolio and RRK converted its debenture into common stock of BigBytes, hoping that eventually Macrosoft, the world's largest computer company, would make a generous takeover offer. Chip reported a capital gain of over $19,000,000. Not only did Macrosoft never make an offer, but soon thereafter BigBytes business was virtually nonexistent, as the purported advanced technology on which Chip's initial investment had been made and the company had been taken public was significantly exaggerated. RRK sued Chip seeking damages for common law fraud and violation of the federal securities laws in connection with the sale. Chip settled in a subsequent year by paying RRK $10,000,000. What is the tax effect to Chip upon making the payment?