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Burke, supra at 237; Threlkeld v. Commissioner, supra at 1305.
Our focus is on the nature of the taxpayer’s injury and whether
the award was received on account of personal or nonpersonal
injuries. Threlkeld v. Commissioner, supra at 1308; Bennett v.
Commissioner, T.C. Memo. 1994-190.
If damages have been clearly allocated to an identifiable
claim in a court judgment, we are guided by the nature of the
claim as defined under State law personal injury concepts.
Roemer v. Commissioner, 716 F.2d 693, 697 (9th Cir. 1983), revg.
79 T.C. 398 (1982); Threlkeld v. Commissioner, supra at 1305-
1306. Although Federal law rather than State law governs the
characterization of payments for Federal income tax purposes, a
State’s characterization of a payment can inform the Federal
decision. Rozpad v. Commissioner, 154 F.3d 1, 6 (1st Cir. 1998),
affg. T.C. Memo. 1997-528.
2. Petitioner’s Compensatory Damages for Common-Law Fraud
Petitioners argue that the compensatory damages petitioner
received on his claim for fraud were on account of personal
injury because “the fraud perpetrated on Mr. Gregg violated his
person and his rights and is a personal injury under applicable
State law”. Respondent contends that the damages were awarded
for fraud in regard to a sales contract, not for injury to a
person. For the reasons described below, we agree with
respondent that petitioner’s damages award on his claim for
common-law fraud was not received on account of a personal injury
within the meaning of section 104(a)(2).
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