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The breach of contract and the misrepresentation claims do
not sound in tort, and to the extent that the agreement with DHS
was made to satisfy those claims, any settlement proceeds would
not be excludable under section 104(a)(2). See Metzger v.
Commissioner, 88 T.C. 834, 848-850, 858 (1987), affd. without
published opinion 845 F.2d 1013 (3d Cir. 1988); Reisman v.
Commissioner, T.C. Memo. 2000-173, affd. without published
opinion 248 F.3d 1151 (6th Cir. 2001).
The record in this case shows numerous potential reasons for
DHS to enter into the settlement agreement, including the
settlement of tort or tort type personal injury claims. It
appears that Mr. Forste’s assertion of his tort or tort type
personal injury claims influenced and expedited DHS’s decision to
negotiate the settlement with Mr. Forste. Thus, we cannot agree
with respondent’s suggestion that the only reasons that DHS
entered into the agreement with Mr. Forste were to provide a
severance, to terminate a targeted employee, and to settle the
breach of contract claim. The evidence in the record
demonstrates that Mr. Forste asserted several tort or tort type
claims, those claims involve personal injuries for purposes of
section 104(a)(2), and at least a portion of the settlement in
this case was made to settle those claims. However, our inquiry
does not end there.
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