Violet A. Reynolds - Page 9

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          generally made by reference to the settlement agreement in light            
          of the facts and circumstances surrounding it.  Key to this                 
          determination is the "intent of the payor" in making the payment.           
          Knuckles v. Commissioner, 349 F.2d 610, 613 (10th Cir. 1965),               
          affg. T.C. Memo. 1964-33; Agar v. Commissioner, 290 F.2d 283, 284           
          (2d Cir. 1961), affg. per curiam T.C. Memo. 1960-21; Seay v.                
          Commissioner, 58 T.C. 32, 37 (1972).  We must ask ourselves:  "In           
          lieu of what was the payment received?"  See Robinson v.                    
          Commissioner, 102 T.C. 116, 126-127 (1994), affd. in part, revd.            
          in part on an issue not relevant herein and remanded 70 F.3d 34             
          (5th Cir. 1995).  Although the payee's belief is relevant to this           
          inquiry, the payment's ultimate character depends on the payor's            
          dominant reason for making the payment.  Commissioner v.                    
          Duberstein, 363 U.S. 278, 286 (1960); see Agar v. Commissioner,             
          supra at 298; Fono v. Commissioner, 79 T.C. 680 (1982), affd.               
          without published opinion 749 F.2d 37 (9th Cir. 1984).                      
               The settlement agreement indicates that Mr. Kent paid the              
          disputed amount to petitioner in surrender of her rights in most            
          of the property purchased during their relationship.5  Respondent           
          agrees with this characterization, but extrapolates therefrom               
          that Mr. Kent paid petitioner the disputed amount to compensate             

               5 We recognize that KENCOR paid petitioner the $22,000                 
          amount and that KENCOR issued petitioner a Form 1099-MISC                   
          reporting that the amount was paid as miscellaneous income.  The            
          record, however, tends to disprove such a characterization.  The            
          more likely explanation of the payment, and the one we find from            
          the facts herein, is that Mr. Kent, as principal shareholder of             
          KENCOR, caused KENCOR to pay petitioner the $22,000 amount on his           

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