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without published opinion 845 F.2d 1013 (3d Cir. 1988). The
release in this case is essentially the same as that in Lubart v.
Commissioner, T.C. Memo. 1997-343, affd. 154 F.3d 539 (5th Cir.
1998), and in Sodoma v. Commissioner, T.C. Memo. 1996-275. By
its terms, petitioners released IBM from liability for both
contract and tort claims. The release, however, does not
specifically indicate that the lump-sum payments received by
petitioners were paid to settle potential personal injury claims
against IBM.
Where the settlement agreement lacks specific language
stating what the settlement amount was paid to settle, then the
most important factor is generally the intent of the payor.
Respondent argues that petitioners’ failure to lodge any formal
or legal claim against IBM before and at the time of signing the
release established that there was no bona fide dispute between
petitioners and IBM that could provide the basis for settlement.
To prevail under section 104(a)(2), taxpayers are not
required to assert a legal claim before the settlement or
release. However, the absence of any knowledge of the claim by
the employer-payor would negatively affect a taxpayer attempting
to show the requisite intent underlying the payment. See Lubart
v. Commissioner, supra. Here, Edward and Kenneth notified IBM
executives of the initiation of their attempt to reverse the
decision to surplus the CBD department. In the letter to the IBM
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