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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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