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In this case, petitioner's interest expenses arose out of
the settlement of his lawsuit with DHHS. The settlement
agreement was entered into to determine the respective rights of
the parties as a result of petitioner's declaratory judgment
lawsuit.4 Petitioner correctly points out that the 1987
settlement agreement is a completely new contract between
petitioner and DHHS. But the fact that a new contract has been
entered does not affect the nature of the claim. We must look
behind this new agreement to the underlying claim which brought
about the settlement. The lawsuit itself was the reason for the
settlement and subsequent interest payments, so we must examine
the underlying nature of the lawsuit to determine whether it has
a business origin.
The underlying claim of the lawsuit between petitioner and
DHHS relates to the NHSC scholarship contract. Therefore, the
interest payments were made pursuant to the settlement of this
contract dispute. The NHSC contract provided that petitioner
would receive scholarship tuition from DHHS in exchange for his
promise to serve as an employee of DHHS for a term of years
following graduation. Generally, education expenditures are
4Petitioner argues that his primary motive in settling the
lawsuit with DHHS was to eliminate the chance that he would have
to interrupt his medical practice to perform services for DHHS.
The record, however, indicates that this was not a realistic
possibility. DHHS sought from petitioner money damages, not
specific performance.
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