- 15 - (1995), affd. 121 F.3d 393 (8th Cir. 1997). For the taxable year at issue, personal injuries include both physical and nonphysical injuries. See Commissioner v. Schleier, supra at 329 n.4.5 If amounts are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for settlement (and not the validity of the claim) governs whether such amounts are excludable from gross income under section 104(a)(2). See United States v. Burke, 504 U.S. 229, 237 (1992); Mayberry v. United States, 151 F.3d 855, 858 (8th Cir. 1998); Seay v. Commissioner, 58 T.C. 32, 37 (1972). “[T]he critical question is, in lieu of what was the settlement amount paid”? Bagley v. Commissioner, supra at 406. This determination is factual. Id. II. Were the Underlying Causes of Action Based on Tort or Tort Type Rights? To satisfy the first Schleier requirement, the taxpayer must prove the existence of a claim based upon tort or tort type rights. See Commissioner v. Schleier, supra at 337. For this purpose, claims must be bona fide but need not be valid or sustainable. See Mayberry v. United States, supra at 859 n.3; Taggi v. United States, 35 F.3d 93, 96 (2d Cir. 1994); Robinson 5 The Small Business Job Protection Act of 1996 (SBJPA), Pub. L. 104-188, sec. 1605, 110 Stat. 1838, amended sec. 104(a)(2) by limiting the exclusion from gross income to, inter alia, damages received “on account of personal physical injuries or physical sickness.” This amendment, however, does not apply to amounts received before Aug. 20, 1996. See SBJPA sec. 1605(d)(1), 110 Stat. 1839. Therefore, the SBJPA amendment is inapplicable to the instant case.Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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