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On the basis of this record, we conclude that such amount
was not based upon a tort or tort type claim, but rather it was
on account of legal injuries of an economic character arising out
of a contract claim. Accordingly, the $18,120 is not excludable
under section 104(a)(2) and thus is includable in petitioners'
income for taxable years 1992 through 1995.
We must now decide whether $17,880, the balance of the
annual $36,000 payment, is excludable from income under section
104(a)(2) for each of the taxable years at issue.
Again, petitioner's settlement proceeds of $17,880 may be
excluded from gross income only if petitioners show that: (1)
The underlying cause of action giving rise to the recovery is
"based upon tort or tort type rights" and (2) the damages were
received "on account of personal injuries or sickness."
Commissioner v. Schleier, supra at 337. The other principles set
forth above also apply.
Petitioners contend that the $17,880 portion payable under
the Settlement Agreement is excludable under section 104(a)(2)
because, in addition to seeking punitive damages, petitioner
asserted five tort claims against WNIC. Petitioners further
contend that petitioner suffered personal injuries to his good
name, personal integrity, and business reputation. Petitioners
made the same contentions with respect to the $18,120 payment
upon which we have ruled above. Thus, petitioners argue that
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