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warranted when: (1) The underlying cause of action giving rise
to the recovery of the funds in question is based upon tort or
tort-type rights and (2) the funds are received on account of
personal injury or sickness. O'Gilvie v. United States, 519 U.S.
___, 117 S. Ct. 452 (1996); Commissioner v. Schleier, 515 U.S. at
____, 115 S. Ct. at 2163; P & X Mkts., Inc. v. Commissioner, 106
T.C. 441, 443-444 (1996); sec. 104(a)(2); sec. 1.104-1(c), Income
Tax Regs. Where damages are received pursuant to a settlement
agreement, the nature of the claim that constitutes the actual
basis for settlement controls whether such damages are excludable
under section 104(a)(2). United States v. Burke, 504 U.S. 229,
237 (1992); Foster v. Commissioner, T.C. Memo. 1996-276. "[T]he
critical question is, in lieu of what was the settlement amount
paid?" Bagley v. Commissioner, 105 T.C. 396, 406 (1995). In
determining the answer to this question, the most important
factor is the intent of the payor. Robinson v. Commissioner, 102
T.C. 116, 127 (1994), affd. in part and revd. in part 70 F.3d 34
(5th Cir. 1995).
While the parties' settlement agreement does not in any
manner allocate the proceeds to any particular claim raised by
petitioner, the settlement reflects the parties' willingness to
accede to the conclusions of the mediation panel. Therefore, we
find that the mediation panel's evaluation served as the basis of
the settlement. Petitioner's mediation summary, furnished to the
panel prior to the mediation hearing, asserted claims that United
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