- 14 -
(2d Cir. 1961), affg. per curiam T.C. Memo. 1960-21; Seay v.
Commissioner, 58 T.C. 32, 37 (1972). We ask ourselves: "In lieu
of what were the damages awarded?" Robinson v. Commissioner,
102 T.C. at 126-127, and the cases cited thereat. Although the
payee's belief is relevant to this inquiry, the ultimate
character of the payment rests on the payor's dominant reason for
making the payment. See Agar v. Commissioner, supra at 284;
Fono v. Commissioner, 79 T.C. 680 (1982), affd. without published
opinion 749 F.2d 37 (9th Cir. 1984). A payor's intent may
sometimes be found in the characterization of the payment in a
settlement agreement (or other executed document), but such a
characterization is not always dispositive, for example, when the
record proves the characterization inconsistent with the
realities of the settlement. Bagley v. Commissioner, 105 T.C.
396, 406 (1995), affd. 121 F.3d 393 (8th Cir. 1977); Robinson v.
Commissioner, supra; Threlkeld v. Commissioner, 87 T.C. 1294,
1306-1307 (1986), affd. 848 F.2d 81 (6th Cir. 1988); see Knuckles
v. Commissioner, supra at 613; Eisler v. Commissioner, 59 T.C.
634, 640 (1973).
Petitioner argues that the settlement agreement in issue
characterizes Balfour's reason for making the settlement payment
to petitioner as compensation for a personal injury. We read the
record, however, not to support this characterization. In
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