John W. Banks, III - Page 17




                                       - 17 -                                         
          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             






Page:  Previous  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  Next

Last modified: May 25, 2011