- 6 -
rights, and (2) the damages were received on account of personal
injuries or sickness. See Commissioner v. Schleier, 515 U.S.
323, 337 (1995).
Where amounts are received pursuant to a settlement
agreement, the nature of the claim that was the actual basis for
settlement and not its validity controls whether such amounts are
excludable from gross income under section 104(a)(2). See Seay
v. Commissioner, 58 T.C. 32, 37 (1972). “[T]he 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).
In the instant case, the settlement agreement does not
allocate the $350,000 lump-sum payment among petitioners’ various
claims, so we will examine the nature of each claim in turn.
First, the Federal lawsuit was brought under the Age
Discrimination in Employment Act of 1967 (ADEA), Pub. L. 90-202,
sec. 2, 81 Stat. 602. Recovery under ADEA is not based upon tort
or tort type rights. See Commissioner v. Schleier, supra at 334-
336. Thus, any portion of Mr. Reisman’s claim allocated to the
Federal claim would be taxable.
Second, in the State action, petitioners sought compensatory
and punitive damages for a statutory claim of age discrimination
and several common law claims, including invasion of privacy,
defamation, intentional infliction of emotional distress, and
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011