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construed. Commissioner v. Schleier, 515 U.S. ___, , 115 S.
Ct. 2159, 2163 (1995).
Pursuant to section 104(a)(2), gross income does not include
"the amount of any damages received (whether by suit or agreement
and whether as lump sums or as periodic payments) on account of
personal injuries or sickness". The regulations provide that
"The term 'damages received (whether by suit or agreement)' means
an amount received * * * through prosecution of a legal suit or
action based upon tort or tort type rights, or through a
settlement agreement entered into in lieu of such prosecution."
Sec. 1.104-1(c), Income Tax Regs. Accordingly, to exclude
damages from gross income pursuant to section 104(a)(2), the
taxpayer must establish that: (1) The underlying cause of action
is based upon tort or tort type rights, and (2) the damages were
received on account of personal injuries or sickness.
Commissioner v. Schleier, 515 U.S. at ___, 115 S. Ct. at 2167.
Turning to the first requirement of Commissioner v.
Schleier, supra, we examine whether petitioner's claim was "based
upon tort or tort type rights". Citing United States v. Burke,
504 U.S. 229, 237 (1992), respondent argues that petitioner's
claim, which arose under title VII, was not based upon tort or
tort type rights. Petitioners, however, argue that petitioner's
claim was based upon tort or tort type rights because, as
petitioner was never an employee or trainee of State Farm, the
State Farm payment could therefore only represent tort or tort
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