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Petitioners argue that the one-time payment was on account
of personal physical injury because the only actual and/or
potential claim petitioner had against Amdahl at the time the
release was signed was for personal physical injury.
Where damages are received pursuant to a settlement
agreement, the nature of the claim that was the actual basis for
the agreement controls whether such damages are excludable under
section 104(a)(2). See Brennan v. Commissioner, supra. Where
the settlement agreement lacks express language stating what the
settlement amount was paid to settle, then the most important
factor in making that determination is the intent of the payor,
rather than whether or not the taxpayer actually suffered an
injury. See Primozic v. Commissioner, T.C. Memo. 1999-95. The
absence of any knowledge of a claim on the part of the payor has
a negative impact in determining the requisite intent of the
payment. See Brennan v. Commissioner, supra. Claims for
1(...continued)
* * * * * * *
* * * Paragraph (2) shall not apply to any punitive damages
in connection with a case not involving physical injury or
physical sickness.
The amendment applies to amounts (1) received after August 20,
1996, in taxable years ending after such date, (2) which were not
received under a written binding agreement, court decree, or
mediation award in effect on (or issued on or before) September
13, 1995. See id. sec. 1605(d), 110 Stat. 1839. Petitioner
signed the release in this case on March 14, 1997, and the
payment therefor was received after that date.
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