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Welch v. Helvering, 290 U.S. 111, 115 (1933); Robinson v.
Commissioner, 102 T.C. 116, 124 (1994), affd. in part, revd. in
part on an issue not relevant herein and remanded 70 F.3d 34 (5th
Cir. 1995).
For 1990, section 104(a)(2) excludes from gross income “the
amount of any damages received (whether by suit or agreement and
whether as lump sums or as periodic payments) on account of
personal injuries or sickness”. Damage recoveries fall within
this provision to the extent that: (1) The cause of action
giving rise to the damages is based upon tort or tort type rights
and (2) the damages are received on account of personal injuries
or sickness. See Commissioner v. Schleier, 515 U.S. 323, 336-337
(1995). For the taxable year under consideration, personal
injuries included both physical and nonphysical injuries. See
id. at 329 n.4.
The nature of the claim underlying a damage award, rather
than the validity of the claim, determines whether damages meet
the two-part Schleier test. See United States v. Burke, 504 U.S.
229, 237 (1992); Robinson v. Commissioner, supra at 125-126.
Ascertaining the nature of the claim is a factual determination
that is generally made by reference to the settlement agreement,
in light of the facts and circumstances surrounding it. Key to
this determination is the "intent of the payor" in making the
payment. Knuckles v. Commissioner, 349 F.2d 610, 613 (10th Cir.
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