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sickness. See Commissioner v. Schleier, 515 U.S. 323, 336-337
(1995).
Where damages are received pursuant to a settlement
agreement, the nature of the claim that was the actual basis for
settlement governs the excludability of the damages under section
104(a)(2). See United States v. Burke, 504 U.S. 229, 237 (1992).
“The critical question is, in lieu of what was the settlement
amount paid?” Bagley v. Commissioner, 105 T.C. 396, 406 (1995),
affd. 121 F.3d 393 (8th Cir. 1997).
Assuming that petitioner may have had a potential tort type
claim for emotional distress or other injuries resulting from his
involuntary termination of employment, the crucial question is
whether he received the $76,740 payment on account of personal
injuries or sickness.
Where, as here, the settlement agreement does not expressly
state the purpose for which payment was made, the most important
factor is the payor’s intent. See Knuckles v. Commissioner, 349
F.2d 610, 613 (10th Cir. 1965), affg. T.C. Memo. 1964-33.
The evidence does not indicate that APC intended to
compensate petitioner for personal injuries. To the contrary,
the release, as well as correspondence between APC and
petitioner, indicates that both APC and petitioner regarded the
payment in question as severance pay. Neither the mode of
calculating the payment, based on petitioner’s years of service
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