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personal injuries or sickness". The regulations provide that "The
term 'damages received (whether by suit or agreement)' means an
amount received * * * through prosecution of a legal suit or action
based upon tort or tort type rights, or through a settlement
agreement entered into in lieu of such prosecution." Sec. 1.104-
1(c), Income Tax Regs. Thus, in order to exclude damages from gross
income pursuant to section 104(a)(2), the taxpayer must prove that:
(1) The underlying cause of action is based upon tort or tortlike
rights, and (2) the damages were received on account of personal
injuries or sickness. Commissioner v. Schleier, supra at 336-337.
Where amounts are received pursuant to a settlement agreement,
the nature of the claim that was the actual basis for settlement
controls whether such amounts are excludable from gross income under
section 104(a)(2). United States v. Burke, 504 U.S. 229, 237
(1992). The crucial question is "in lieu of what was the settlement
amount paid?" Bagley v. Commissioner, 105 T.C. 396, 406 (1995),
affd. 121 F.3d 393 (8th Cir. 1997). Determining the nature of the
claim is a factual inquiry. Robinson v. Commissioner, 102 T.C. 116,
127 (1994), affd. in part, revd. in part and remanded 70 F.3d 34
(5th Cir. 1995).
In the instant case, it is unclear that the General Release
included a settlement of petitioner's claims for wrongful
termination rather than a general severance package. But even
assuming arguendo that it did include a settlement for some type of
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