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wanted the settlement payment connected to a tortlike personal
injury so that he could maximize his recovery by avoiding taxes
on his recovery. The DOE, on the other hand, did not care
whether the settlement proceeds were allocated to tortlike
personal injury damages vis-a-vis other damages. The DOE’s
dominant concern was that all of petitioner's claims be settled.
The DOE, in effect, gave petitioner the green light to state in
the settlement agreement his opinion as to the characterization
of the settlement proceeds. Petitioner and the DOE did not
prepare the settlement agreement by assessing the damages of the
lawsuit and allocating petitioner's recovery accordingly.
In a setting such as this, where the parties to a settlement
agreement fail to reflect accurately their agreement in a written
document, we need not accept the characterization of one of the
parties. That petitioner may have wanted the payment to be
characterized as compensation for a tortlike personal injury does
not govern the taxation of the payment for purposes of section
104(a)(2). The key to the payment's taxability, as discussed
above, turns on the payor’s intent. That intent, we find, is
found in the District Court’s pretrial order. Pretrial orders,
unless modified, control the subsequent course of a lawsuit, see
Fed. R. Civ. P. 16(e), and we find nothing in the record to
indicate that the District Court’s pretrial order was not in
effect when the case settled. As the District Court’s pretrial
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