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personal physical injuries or physical sickness” for payments
made after August 20, 1996.
In the instant case, petitioner received the $5,000
settlement payment pursuant to a settlement agreement with Morgan
Stanley. When damages 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, supra at 237. The
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 on another issue 70 F.3d 34 (5th Cir. 1995),
and cases cited therein. If the settlement agreement lacks
express language stating what the settlement amount was paid to
settle, we look to the intent of the payor, based on all the
facts and circumstances of the case, including the complaint
filed and details surrounding the litigation. Knuckles v.
Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C.
Memo. 1964-33; Robinson v. Commissioner, supra at 127. If a
settlement is attributable to claims based on tort or tort type
rights as well as other rights, it may be necessary to determine
which portion of the settlement is attributable to damages
received based on tort or tort type rights. Similarly, it may be
necessary to determine which portion, if any, of the settlement
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