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In the instant case, as in LeFleur v. Commissioner, supra,
the evidence does not suggest that the parties had any
adversarial interests in characterizing the settlement payments
as being for “personal damages”. On the basis of all the
evidence, it appears that the “personal damages” characterization
occurred after the parties had reached agreement in principle on
the settlement. Clearly, petitioners had tax motivations for
characterizing the payments as being for personal injuries. The
evidence strongly suggests that Maritz Inc. was unconcerned with
how the payments were allocated, so long as all potential claims
were discharged.9
In sum, we are unconvinced that the mere use of the term
“personal damages” in various documents, as described above,
establishes that Maritz Inc. intended the settlement payments to
discharge exclusively claims for personal injuries or sickness.
Consequently, we look to all the evidence to determine the nature
of the underlying claims for which the payments were made and the
intent of Maritz Inc. in making the payments.
9 Millard Backerman testified that he thought “the lion’s
share” of the tax consistency letter was drafted by Katherine’s
and Damian’s attorney, Kenneth Suelthaus. Petitioners seek to
counter this testimony with testimony by David Fleisher, former
chief financial officer of Maritz Inc., that the tax consistency
letter was “drafted by our lawyers”. We find Backerman’s
testimony more credible in this regard, particularly in light of
the fact that Backerman was Maritz Inc.’s attorney in the
settlement negotiations.
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