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Therefore, we must decide: (1) Whether the wrongful
termination claim underlying petitioner's settlement agreement
was based upon tort or tort type rights; and (2) whether the
damages paid to petitioner in settlement of such claim were
received on account of personal injuries or sickness.
We must first decide whether petitioner's settlement
agreement was based upon tort or tort type rights. State law
controls the nature of the legal interests and rights created by
State law, even though the Federal tax consequences pertaining to
such interests and rights are solely a matter of Federal law.
Commissioner v. Tower, 327 U.S. 280, 288 (1946); Lucas v. Earl,
281 U.S. 111 (1930); Brabson v. United States, 73 F.3d 1040,
1044 (10th Cir. 1996). Accordingly, we look to the law of the
State of Oklahoma for guidance as to the nature of petitioner's
wrongful termination cause of action.
The Oklahoma Supreme Court first adopted a public policy
tort exception to the Oklahoma terminable-at-will employment rule
in Burk v. K-Mart Corp., 770 P.2d 24 (Okla. 1989). In discussing
the nature of the cause of action the Court was very specific:
We recognize this new cause of action in tort. It is
well settled in Oklahoma a tort may arise in the course
of the performance of a contract and that tort may then
be the basis for recovery even though it is the
contract that creates the relationship between the
parties. An employer's termination of an at-will
employee in contravention of a clear mandate of public
policy is a tortious breach of contractual obligations.
Id. at 28. [Fn. refs. omitted].
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