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Commissioner v. Schleier, supra at 336-337, established a two-
pronged test for ascertaining a taxpayer’s eligibility for the
section 104(a)(2) exclusion. “First, the taxpayer must
demonstrate that the underlying cause of action giving rise to
the recovery is ‘based upon tort or tort type rights’; and
second, the taxpayer must show that the damages were received ‘on
account of personal injuries or sickness.’” Id. at 337; Banaitis
v. Commissioner, supra at 1079. This test has since been
extended to apply to post-SBJPA section 104, with the
corresponding change that the second prong now requires proof
that the personal injuries or sickness for which the damages were
received were physical. Shaltz v. Commissioner, T.C. Memo. 2003-
173; Henderson v. Commissioner, T.C. Memo. 2003-168; Prasil v.
Commissioner, T.C. Memo. 2003-100.
B. Did Petitioner Make a Tort Claim?
Respondent argues that petitioner’s claims regarding his
termination did not sound in tort.
The determination of whether a settlement payment is exempt
pursuant to section 104 depends on the nature of the claim
settled and not on the validity of the claim. Robinson v.
Commissioner, 102 T.C. 116, 126 (1994), affd. in part, revd. in
part and remanded on another issue 70 F.3d 34 (5th Cir. 1995);
Seay v. Commissioner, 58 T.C. 32, 37 (1972). The determination
of the nature of the claim is a factual one based on an
examination of all the evidence. Robinson v. Commissioner,
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