Leslie R. Foster and Mattie J. Foster, et al. - Page 6

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               through a settlement agreement entered into in lieu of                 
               such prosecution.                                                      
               Thus, an amount may be excluded from gross income only when            
          it was received both: (1) through prosecution or settlement of an           
          action based upon tort or tort type rights; and (2) on account of           
          personal injuries or sickness.  Commissioner v. Schleier, 515               
          U.S. at    , 115 S. Ct. at 2166-2167; Wesson v. United States, 48           
          F.3d 894, 901-902 (5th Cir. 1995); Bagley v. Commissioner, 105              
          T.C. 396, 416 (1995).                                                       
               Where damages are received pursuant to settlement                      
          agreements, as is the case herein,4 the nature of the claims that           
          were the actual basis for settlement controls whether such                  
          damages are excludable under section 104(a)(2).  United States v.           
          Burke, 504 U.S. 229, 237 (1992); Robinson v. Commissioner, 102              
          T.C. 116, 126 (1994), affd. in part, revd. in part 70 F.3d 34               
          (5th Cir. 1995).  "[T]he critical question is, in lieu of what              
          was the settlement amount paid?"  Bagley v. Commissioner, supra             
          at 406.                                                                     

          4  In response to a concern of petitioners, we note that we                 
          consider the release agreements to be settlements or settlement             
          agreements.  See, e.g., Black's Law Dictionary at 1372 (6th ed.             
          1990) (defining "settle" as "A word of equivocal meaning; meaning           
          different things in different connections, and the particular               
          sense in which it is used may be explained by the context or the            
          circumstances").  In any event, whatever the semantical                     
          description of the releases, the focus is on the actual terms of            
          the documents.                                                              

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