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Where there is an express allocation contained in the agreement between
the parties, it will generally be followed in determining the allocation if
the agreement is entered into by the parties in an adversarial context at
arm's length and in good faith. Robinson v. Commissioner, supra. However, an
express allocation set forth in the settlement is not necessarily
determinative if other facts indicate that the payment was intended by the
parties to be for a different purpose.
It is petitioners' position that the express language in the settlement
agreement provides that the payment is a payment for the actual injuries. In
support of this position petitioners quote the provision of the agreement that
petitioner acknowledges payment and receipt of the sum of $1.5 million as
damages "for personal injuries, including alleged damages for invasion of
privacy, injury to personal reputation including defamation, emotional stress,
and pain and suffering". It is petitioners' contention that this express
language in the settlement shows that the entire payment of $1.5 million was
made for a tort type personal injury and, therefore, is excludable under
section 104(a)(2). In support of this position, petitioners cite the
statement in Glynn v. Commissioner, 76 T.C. 116, 120 (1981), affd. without
published opinion 676 F.2d 683 (1st Cir. 1982), that the most important fact
in determining the purpose of the payment is "express language [in the
agreement] stating that the payment was made on account of personal injuries".
See also Metzger v. Commissioner, 88 T.C. 834, 847 (1987), affd. without
published opinion 845 F.2d 1013 (3d Cir. 1988). Petitioners state that the
situation in petitioner's case is almost identical with that in McKay v.
Commissioner, supra, and is distinguishable from the situation in Robinson v.
Commissioner, supra, relied on by respondent.
In both Robinson v. Commissioner, supra at 127, and McKay v.
Commissioner, supra at 483, we recognized that when a settlement agreement
clearly allocates the settlement proceeds between tortlike personal injury
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