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windfall * * * rather than compensation.”). Because the amount
paid was in settlement of multiple claims, we must first
determine the character or nature of the settlement.
When an amount is paid in settlement of litigation, we must
ascertain the specific claims, if any, for which the settlement
was paid. Bagley v. Commissioner, 105 T.C. 396, 406 (1995),
affd. 121 F.3d 393 (8th Cir. 1997). Where the settlement
language does not delineate which claims are being settled, the
most important factor in determining the nature of a settlement
payment is the payor’s intent in making the payment. Knuckles v.
Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C.
Memo. 1964-33. If a payor’s intent cannot be discerned from the
settlement agreement, all the facts and circumstances surrounding
the case should be considered. Robinson v. Commissioner, 102
T.C. 116, 127 (1994), affd. in part, revd. in part and remanded
70 F.3d 34 (5th Cir. 1995). Specific factors to consider include
the details of the underlying proceeding and the allegations,
responses, and arguments contained in the pleadings of that
proceeding. Id.
Petitioners testified that the primary discussion at
conference was about the cost to repair the property, not about
the possibility of punitive damages. Petitioners’ counsel in the
Allstate insurance controversy testified that the only reference
to punitive damages made in settlement negotiations was
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