Lance R. and Elaine C. LeFleur - Page 16

                                               - 16 -                                                 
            (2d Cir. 1961), affg. T.C. Memo. 1960-21; Metzger v.                                      
            Commissioner, supra at 847-848.                                                           
                  Where the settlement agreement expressly allocates the                              
            settlement proceeds between tortlike personal injury damages and                          
            other damages, the allocation is generally binding for tax                                
            purposes (and the tortlike personal injury damages are excludable                         
            under section 104(a)(2)).  Bagley v. Commissioner, supra at 406;                          
            Robinson v. Commissioner, supra at 127; Threlkeld v.                                      
            Commissioner, supra at 1306-1307; Fono v. Commissioner, supra at                          
            694.  However, an express allocation set forth in the settlement                          
            is not necessarily determinative of the nature of the claim if                            
            the agreement is not entered into by the parties in an                                    
            adversarial context at arm's length and in good faith, or if                              
            other factors indicate that the payment was intended by the                               
            parties to be for a different purpose.  Bagley v. Commissioner,                           
            supra at 406; Threlkeld v. Commissioner, supra at 1306-1307.                              
            Where the express allocation is not to be respected, other                                
            factors, which include the payor's intent and the background of                           
            the litigation, rise to the fore in determining the nature of the                         
            claim.  See Knuckles v. Commissioner, supra at 613; Eisler v.                             
            Commissioner, 59 T.C. 634, 640 (1973).                                                    
                  A.  The Settlement Agreement Was Not Entered Into by the                            
            Parties in an Adversarial Context at Arm's Length.                                        
                  This Court has considered previously the circumstances under                        
            which we will and will not disregard specific allocations made in                         

Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011