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The critical question is "in lieu of what was the settlement
amount paid?" Bagley v. Commissioner, 105 T.C. 396, 406 (1995).
Determination of the nature of the claim is a factual inquiry.
Robinson v. Commissioner, supra at 127.
The amounts petitioner received under the settlement
agreement were intended to settle petitioner's claim under Title
VII. Although the settlement agreement does not contain a
specific statement to that effect, the surrounding circumstances
establish that Title VII is the underlying claim. Petitioner was
a member of a class action suit asserting a claim of
discrimination under Title VII. The District Court ruled that
State Farm was liable under Title VII to all members of the class
who had been discriminated against and ordered individual
hearings. State Farm and the plaintiffs to the class action suit
agreed on a procedure and a formula to ascertain the amount owed,
if any, to each individual claimant. Petitioner's damages under
the consent decree were ascertained, and petitioner was paid an
amount equal to 78 percent of her full claim under the consent
decree, plus a bonus amount. Thus, the consent decree
implemented the District Court's ruling that State Farm was
liable under Title VII, and the settlement agreement represented
a compromise and settlement of petitioner's rights under the
consent decree. As a result, we conclude that petitioner's
settlement proceeds were intended to settle her Title VII claim
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