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action based upon tort or tort type rights; and (2) on account of
personal injuries or sickness. Commissioner v. Schleier, supra;
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 a settlement
agreement, the nature of the claim that was 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); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir.
1989), affg. 89 T.C. 632 (1987); 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.
Determination of the nature of the claim is factual. Bagley
v. Commissioner, supra; Stocks v. Commissioner, 98 T.C. 1, 11
(1992). The first requirement is the existence of a claim based
upon tort or tort type rights. Commissioner v. Schleier, supra
at 337. The claim must be bona fide, but not necessarily "valid;
i.e.," sustainable. Taggi v. United States, 35 F.3d 93, 96 (2d
Cir. 1994); Robinson v. Commissioner, 102 T.C. at 126; Stocks v.
Commissioner, supra at 10. In this connection, we have held that
claims for potential future personal injuries do not qualify for
exclusion under section 104(a). Roosevelt v. Commissioner, 43
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