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(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
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