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37 (1972); Burditt v. Commissioner, T.C. Memo. 1999-117. The
proper inquiry is: In lieu of what were damages awarded? See
Bagley v. Commissioner, supra at 406. Determination of the
nature of the claim is factual and is made by examining the
relevant facts and circumstances. See id.; Burditt v.
Commissioner, supra.
I. Were The Underlying Causes of Action Giving Rise to the
Payments Based Upon Tort or Tort Type Rights?
The first prong of the Schleier test requires a taxpayer to
prove the existence of a claim based upon tort or tort type
rights. See Commissioner v. Schleier, supra at 337. We must
decide, therefore, whether petitioner’s alleged claims were tort
or tort type claims and whether the claims were bona fide, but
not necessarily valid or sustainable. See Pipitone v. United
States, 180 F.3d 859, 862 (7th Cir. 1999); Taggi v. United
States, 35 F.3d 93, 96 (2d Cir. 1994). State law controls
whether the nature of the claim is a tort or tort type right, and
Federal law controls Federal tax consequences pertaining to such
interests and rights. See Commissioner v. Tower, 327 U.S. 280,
288 (1946); Threlkeld v. Commissioner, supra at 1305-1306; Barnes
v. Commissioner, T.C. Memo. 1997-25.
Petitioner asserts that two primary legal claims were the
basis for his settlement with Okabena-–defamation and age
discrimination.
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