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personal physical injuries or physical sickness. See
Commissioner v. Schleier, 515 U.S. 323, 328 (1995); see also sec.
104(a)(2); sec. 1.104-1(c), Income Tax Regs.
We find petitioner meets the first prong, having brought a
tort type action against Liberty. We then turn to whether the
$58,000 amount pursuant to the settlement agreement with Liberty
was received on account of a personal physical injury or physical
sickness.
When damages are received pursuant to a settlement
agreement, as here, the nature of the claim that was the actual
basis for settlement, not the validity of that claim, controls
whether the amounts are excludable under section 104(a)(2). See
Bagley v. Commissioner, 105 T.C. 396, 406 (1995), affd. 121 F.3d
393 (8th Cir. 1997). Determining the nature of the claim is a
factual inquiry that is generally made by reference to the
settlement agreement. Robinson v. Commissioner, 102 T.C. 116,
126 (1994) (and cases cited thereat), affd. in part and revd. in
part on another ground 70 F.3d 34 (5th Cir. 1995). If the
settlement agreement lacks express language stating what the
settlement amount was paid to settle, we determine the intent of
the payor by considering all the facts and circumstances of the
case, including the complaint filed and details surrounding the
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