Robert and Mildred Peaco - Page 4

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          tort or tort type rights, and (2) on account of personal injuries           
          or sickness.  See Commissioner v. Schleier, 515 U.S. 323 (1995).            
               Petitioners contend that the express terms of the settlement           
          agreement satisfy the personal injury or sickness requirement.              
          The terms of the settlement agreement, however, do not reflect              
          the realities of the settlement.  See Robinson v. Commissioner,             
          102 T.C. 116 (1994) (stating, under similar circumstances, that             
          the Court’s holding need not be consistent with the terms of a              
          settlement agreement when those terms do not reflect the                    
          realities of the settlement), affd. in part, revd. in part, and             
          remanded on other grounds 70 F.3d 34 (5th Cir. 1995).  A                    
          significant portion of the proceeds was paid to satisfy the loss            
          of compensation claim.  The amount paid was consistent with                 
          CCIU’s attorney’s analysis of liability to Mrs. Peaco.                      
               The agreement between CCIU and Utica, offered by respondent,           
          evidences CCIU’s intention to allocate a portion of the proceeds            
          to personal injury.  Petitioners, however, disavow reliance on              
          that agreement and contend that it had no binding effect on the             
          settlement and should be wholly disregarded.  In sum, petitioners           
          have failed to establish that Mrs. Peaco received all, or any               
          part, of the proceeds on account of personal injury or sickness.            
          Accordingly, the proceeds are not excludable pursuant to section            
          104(a)(2).                                                                  







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