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In summary, with respect to the first prong of the Schleier
test, petitioner has shown that some tort or tort type rights
were pleaded in the proceedings, which ended in settlement, but
there was no specific pleading of personal injury or sickness.
The more crucial question is whether petitioner has shown that
the settlement was received on account of personal injuries or
sickness.
The law is well settled that the tax consequences of an
award for damages depend upon the nature of the litigation and on
the origin and character of the claims adjudicated, and not upon
the validity of those claims. See Bent v. Commissioner, 87 T.C.
236 (1986), affd. 835 F.2d 67 (3d Cir. 1987); Glynn v.
Commissioner, 76 T.C. 116, 119 (1981), affd. without published
opinion 676 F.2d 682 (1st Cir. 1982); Seay v. Commissioner, 58
T.C. 32, 37 (1972). In this case, petitioner received a global
settlement intended to release the defendants from any claims
that petitioner might have had.
In Commissioner v. Schleier, supra, the Supreme Court
cautioned that there must be a direct link between the personal
injury and the recovery of damages for the section 104(a)(2)
exclusion to apply. Although petitioner has shown, by the
3(...continued)
allege and prove personal injuries and/or sickness. We assume
for purposes of this case that this legal position is correct.
Irrespective of our views on that point of law, the outcome of
this case would remain the same.
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