Emanoil and Magdalena Gantea - Page 6

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          “damages received” as “an amount received (other than workmen’s             
          compensation) through prosecution of a legal suit or action based           
          upon tort or tort type rights, or through a settlement agreement            
          entered into in lieu of such prosecution.”  Amounts are                     
          excludable from gross income only when (1) the underlying cause             
          of action giving rise to the recovery is based on tort or tort              
          type rights, and (2) the damages were received on account of                
          personal injuries or sickness.  Commissioner v. Schleier, supra             
          at 337.                                                                     
               Where amounts are received pursuant to a settlement                    
          agreement, the nature of the claim that was the actual basis for            
          settlement controls whether such amounts are excludable under               
          section 104(a)(2).  United States v. Burke, 504 U.S. 229, 237               
          (1992).  Determination of the nature of the claim is a factual              
          inquiry and is generally made by reference to the settlement                
          agreement.  Robinson v. Commissioner, 102 T.C. 116, 126 (1994),             
          affd. in part and revd. in part 70 F.3d 34 (5th Cir. 1995).                 
          “[W]here an amount is paid in settlement of a case, 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).  An important factor in determining the                
          validity of the agreement is the “intent of the payor” in making            
          the payment.  Knuckles v. Commissioner, 349 F.2d 610, 613 (10th             
          Cir. 1965), affg. T.C. Memo. 1964-33.  If the payor’s intent                






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