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Cir. 1997); McKay v. Commissioner, 102 T.C. 465, 482 (1994). For
the taxable year under consideration, personal injuries included
both physical and nonphysical injuries. See Commissioner v.
Schleier, supra at 329 n.4.
The Supreme Court has held that taxpayers may exclude
damages received if the underlying cause of action giving rise to
the recovery is based upon tort or tort type rights, and the
damages are received on account of personal injuries or sickness.
See id. at 336-337.
Petitioner’s arguments are summarized as follows: (1) The
claim for which the settlement was received generally sounded in
tort; (2) petitioner has shown that he suffered mental and/or
physical ailments in connection with actions of the defendants;
and (3) under the law of the State of Alabama, petitioner’s
claims, although generally or broadly stated as founded upon
commercial harm, could have included petitioner’s mental
suffering, and therefore the settlement is excludable under
section 104(a)(2).
Conversely, respondent’s arguments are summarized as
follows: (1) The defendants’ actions and/or petitioner’s mental
anguish is irrelevant because petitioner’s pleadings were based
on a mixture of tort, tort type, and nontort claims, and the
settlement did not distinguish between or specify any particular
claim; (2) petitioner’s claims and the settlement were for
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