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In the case of a settlement agreement, we have previously
held that the taxpayer bears the burden of establishing the
specific portion of the settlement amount, if any, which was paid
on account of personal injuries or sickness arising from tort or
tort type rights. For example, in Broedel v. Commissioner, T.C.
Memo. 2001-135, we held:
In order to exclude any portion of the $58,372.50
under section 104(a)(2), petitioners must show that the
payments were received on account of personal injuries
or sickness, and they must establish what portion of
the payments, if any, was paid on account of personal
injuries or sickness arising from tort or tort type
rights. * * *
In Taylor v. Commissioner, T.C. Memo. 1999-323, affd. without
published opinion 246 F.3d 676 (9th Cir. 2000), we held that
“Petitioner has failed to establish what part, if any, of the
settlement amount here was based upon tort or tort type rights
and was received on account of personal injuries.” Also, in
Adams v. Commissioner, T.C. Memo. 1997-357, we held:
If a settlement is attributable to claims based on tort
or tort type rights as well as other rights, the
taxpayer bears the burden of establishing which portion
of the settlement is attributable to damages received
based upon tort or tort type rights. Similarly, if the
settlement may be attributable to damages received for
personal injuries or sickness as well as other damages,
the taxpayer bears the burden of establishing which
portion of the settlement is attributable to damages
received for personal injuries or sickness. [Citations
omitted.]
In those cases where a settlement agreement fails to allocate the
proceeds to specific tort or tort type personal injury claims and
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