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C. The Underlying Claims
1. Katherine’s and Damian’s Claims for Personal
Injuries
On the basis of all the evidence, we believe that Bill
Maritz’s actions caused Katherine and Damian to suffer personal
injuries. In particular, Katherine’s termination from Maritz
Inc. caused her acute emotional distress and resulted in dramatic
changes in her personality. The termination of Damian’s
professional relationship with Maritz Inc. also caused him
emotional distress and damaged his professional reputation. Such
claims were asserted on Katherine’s and Damian’s behalf in the
settlement negotiations with Maritz Inc. We believe that Maritz
Inc. took these claims seriously and intended the settlement
payments at least in part to discharge such claims. Accordingly,
we find that the settlement payments were received at least in
part through settlement of tort-based claims on account of
personal injuries or sickness. To that extent, the settlement
payments are excludable from income pursuant to section 104(a)(2)
as amounts received based upon tort rights and on account of
personal injuries. See, e.g., United States v. Burke, 504 U.S.
at 235-236 & n.6, 239 (recognizing that section 104(a)(2) covers
damages for injuries affecting “emotions, reputation, or
character” and “traditional harms associated with personal
injury” include “pain and suffering, emotional distress, [and]
harm to reputation”); Threlkeld v. Commissioner, 87 T.C. at 1308
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