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immediately precede the final settlement agreement indicate that
DHS intended that the settlement amount in paragraph 1 be
allocated to tort type claims involving personal injuries. Those
interim drafts were exchanged as part of the arm’s-length
negotiations between DHS and Mr. Forste.23
In the final stage of the settlement with DHS, Mr. Forste,
on the advice of an accountant, changed the proposed personal
injury language to “Workmen’s Compensation”. DHS agreed to that
change. The final agreement thus provides $25,130 per year “In
settlement of all claims of Workmen’s Compensation arising from
my employment or termination with DH&S”. While the “workmen’s
compensation” language in paragraph 1 of the settlement agreement
does not mandate a conclusion that $25,130 of the payments from
DHS was on account of tort type personal injuries, in the context
of this case, we think it is supportive of that conclusion. As
previously noted, workers’ compensation is intended to compensate
employees for personal injury or sickness incurred in the course
of their employment. Although workers’ compensation is paid on a
no-fault basis, workers’ compensation is traditionally viewed as
a substitute for employers’ direct liability for tort damages.
23The record reflects that tax considerations played some
role in Mr. Forste’s approach to the negotiations with DHS.
However, tax considerations alone are not conclusive regarding
the intent of the payor where, as here, the negotiations were
held in an adversarial context and at arm’s length. See Maxwell
v. Commissioner, 95 T.C. 107, 123 (1990).
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