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discrimination or that the severance payments were made on
account of personal injury or sickness. See sec. 104(a)(2);
Commissioner v. Schleier, 515 U.S. at 337; Agar v. Commissioner,
290 F.2d 283, 284 (2d Cir. 1961) (despite taxpayer’s belief that
company paid him to avoid litigation, payments were in nature of
severance payments and were not excludable from income under
section 104(a)(2)), affg. T.C. Memo. 1960-21.
We conclude that the severance payments were not made to
petitioner “on account of personal injuries”, and no personal
injury affected the amount of the severance payments received.
Sec. 104(a)(2); Commissioner v. Schleier, supra at 330. The
severance payments properly were included in petitioners’ 1993
and 1994 gross income, and petitioners properly paid Federal
income taxes on the severance payments. Petitioners are not
entitled to their claimed refund.
B. Lump-Sum Payments
Paragraph 7 of the settlement agreement specifically stated
that the lump-sum payments were “intended solely as compensation
for claimed damages on account of alleged personal injuries
arising from an occurrence within the meaning of Section
104(a)(2)”. Where, as here, there is an express allocation
contained in the agreement between the parties, it generally will
be respected if the settlement agreement was negotiated by
parties with adversarial interest, at arm's length, and in good
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