- 11 -
T.C. 1, 11 (1992). "[T]he critical question is, in lieu of what
was the settlement amount paid." Bagley v. Commissioner, supra
at 406. If the settlement agreement does not expressly state the
purpose for which payment was made, the most important factor is
the intent of the payor. See Knuckles v. Commissioner, 349 F.2d
610, 612 (10th Cir. 1965), affg. T.C. Memo. 1964-33; Robinson v.
Commissioner, supra; Stocks v. Commissioner, supra at 10;
Laguaite v. Commissioner, T.C. Memo. 2000-103.
A. The Amended Complaint
The crucial question is whether the net amount; i.e., the
$23,550 settlement payment, was received “on account of” personal
injury or sickness. When a payment is received pursuant to a
settlement agreement from which we cannot clearly discern why the
payment was made, the underlying complaint is normally examined
as an indicator of the payor’s intent. See Robinson v.
Commissioner, supra. Logic dictates that defendants will
ordinarily determine their liability by taking into account the
allegations made in the complaint. See Threlkeld v.
Commissioner, 87 T.C. 1294 (1986), affd. 848 F.2d 81 (6th Cir.
1988); Church v. Commissioner, 80 T.C. 1104 (1983). Accordingly,
the payor’s intent may be discerned from the allegations made in
the complaint.
Petitioner’s settlement agreement with Liberty Life does not
state what the $40,000 amount was paid to settle. As the
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