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and Damian’s behalf in the 1994 Suelthaus letters as incorporated
by cross-reference in the settlement agreement.
III. Were the Payments Received on Account of Personal Injuries
or Sickness?
To satisfy the second element of the Schleier test, the
taxpayer must show that the payments were received on account of
personal injuries or sickness. See sec. 104(a)(2); Commissioner
v. Schleier, 515 U.S. at 337. For this purpose, each element of
a tort settlement must be examined to determine whether there is
a direct causal link between the tort and a personal injury.
Commissioner v. Schleier, supra at 330.
A. The Allocation of the Settlement Proceeds Between
Katherine and Damian
Respondent contends that because Maritz Inc. initially
agreed to pay a lump sum of $750,000 to discharge both
Katherine’s and Damian’s claims, and the Hobler family later
decided upon the allocation between Katherine and Damian, it is
impossible “to attribute the necessary ‘direct causal link’
between this lump sum and the alleged personal injuries
suffered”. We disagree.
The tentative agreement to provide a lump-sum amount to be
divided between Katherine and Damian was contingent upon approval
by the Maritz Inc. board of directors. Before the agreement was
approved, Backerman insisted on Suelthaus’ asserting Katherine’s
and Damian’s respective claims in writing, which he did. The
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