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determination that the settlement proceeds are not damages on
account of personal injuries or sickness is erroneous. Welch v.
Helvering, 290 U.S. 111, 115 (1933).
The first place we look to for a characterization of the
proceeds is the settlement agreement itself. See Bagley v.
Commissioner, supra at 406. However, the settlement agreement in
this case does not provide any indication as to what type of
damages the settlement proceeds were paid in lieu of. Rather,
the agreement generally refers to a release of all claims which
petitioner may have had in connection with the termination of her
employment, including all claims asserted in her wrongful
termination action.
Where the settlement agreement does not expressly specify an
allocation of the proceeds among the various claims, the most
important factor in deciding how to allocate the proceeds is what
motivated the payor to pay the settlement amount. Knuckles v.
Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C.
Memo. 1964-33. In determining the intent of the payor, we may
look at the pleadings, jury awards, or any other Court orders or
judgments. Miller v. Commissioner, T.C. Memo. 1993-49,
supplemented by T.C. Memo. 1993-588, affd. without published
opinion 60 F.3d 823 (4th Cir. 1995). Again, these sources do not
provide much information. We have no jury award or Court order
or judgment in our record. The petition in the wrongful
termination case claims damages for mental distress and past and
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