Carl J. Fabry and Patricia P. Fabry - Page 8

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          although it is a necessary condition of exclusion under section             
          104(a)(2) that the damages (or settlement amount) in question be            
          received on account of the prosecution (or settlement) of a suit            
          or action based on tort or tort type rights, that is not a                  
          sufficient condition for exclusion under section 104(a)(2).  The            
          damages or settlement must be received both on account of a                 
          violation of tort or tort type rights and for personal injuries             
          or sickness.  Id. at 330.  The parties here disagree as to                  
          whether the $500,000 payment was received on account of personal            
          injuries.                                                                   
               C.  Arguments of the Parties                                           
               The arguments of the parties are straightforward.                      
          Respondent, while conceding that the $500,000 payment was                   
          received in settlement of a claim for tortious injury to business           
          reputation, argues that it was not received on account of a                 
          personal injury.  Petitioners argue that injury to business                 
          reputation is, as a matter of law, a personal injury.                       
               D.  Discussion                                                         
                    1.  Nature of the Inquiry                                         
               We do not agree with petitioners that injury to business               
          reputation is, as a matter of law, a personal injury.  In                   
          Threlkeld v. Commissioner, supra, we decided not to follow our              
          decision in Roemer v. Commissioner, 79 T.C. 398 (1982), revd. 716           
          F.2d 693 (9th Cir. 1983), in which we distinguished between                 





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