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received on account of personal injuries or sickness.
Commissioner v. Schleier, 515 U.S. at 337.
Where an amount is received pursuant to a settlement
agreement, the proper focus is on the nature of the claim that
was the actual basis for settlement.16 United States v. Burke,
504 U.S. 229, 237 (1992); Seay v. Commissioner, 58 T.C. 32, 37
(1972). This determination is factual and is generally made by
reference to the settlement agreement in light of the surrounding
circumstances. Robinson v. Commissioner, 102 T.C. 116, 126
(1994), affd. in part, revd. in part on another ground and
remanded 70 F.3d 34 (5th Cir. 1995). The critical question is,
in lieu of what was the settlement amount paid? Bagley v.
Commissioner, 105 T.C. 396, 406 (1995), affd. 121 F.3d 393 (8th
Cir. 1997). To be excluded under section 104(a)(2), the
settlement amount must have been paid in settlement of the tort
or tort type claims of Mr. Forste, and it must have been received
on account of his personal injuries. See D’Amico v.
Commissioner, T.C. Memo. 1999-374.
A “tort” is “a ‘civil wrong, other than breach of contract,
for which the court will provide a remedy in the form of an
action for damages.’” United States v. Burke, supra at 234.
16In the context of a settlement agreement, sec. 104(a)(2)
requires only a claim that is bona fide and does not require a
claim which is sustainable. See Stocks v. Commissioner, 98 T.C.
1, 10 (1992); Sodoma v. Commissioner, T.C. Memo. 1996-275, affd.
without published opinion 139 F.3d 899 (5th Cir. 1998).
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