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rights, and (2) the damages were received on account of personal
injuries or sickness. Commissioner v. Schleier, supra at 336-337.
Where amounts are received pursuant to a settlement agreement,
the nature of the claim that was the actual basis for settlement
controls whether such amounts are excludable from gross income under
section 104(a)(2). United States v. Burke, 504 U.S. 229, 237
(1992). The crucial question is "in lieu of what was the settlement
amount paid?" Bagley v. Commissioner, 105 T.C. 396, 406 (1995),
affd. 121 F.3d 393 (8th Cir. 1997). Determining the nature of the
claim is a factual inquiry. Robinson v. Commissioner, 102 T.C. 116,
127 (1994), affd. in part, revd. in part, and remanded 70 F.3d 34
(5th Cir. 1995).
The amounts petitioner received pursuant to the settlement
agreement were intended to settle her claim under title VII.
Although petitioner did not file an individual complaint in that
case, and the settlement agreement does not contain a specific
reference to title VII, it is clear that title VII is the basis for
the underlying claim. The nature of petitioner's claim is identical
to that stated in the complaint filed by the Kraszewski class
representatives, which alleged that State Farm had engaged in
statewide discrimination in the recruiting, hiring, and training of
women for sales agent trainee positions in violation of title VII.
The plaintiffs sought backpay and injunctive and declaratory relief.
The District Court held that State Farm was liable under title VII
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