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“[W]here an amount is paid in settlement of a case, the critical
question is, in lieu of what was the settlement amount paid”.
Bagley v. Commissioner, 105 T.C. 396, 406 (1995), affd. 121 F.3d
393 (8th Cir. 1997). An important factor in determining the
validity of the agreement is the “intent of the payor” in making
the payment. Knuckles v. Commissioner, 349 F.2d 610, 613 (10th
Cir. 1965), affg. T.C. Memo. 1964-33. If the payor’s intent
cannot be clearly discerned from the settlement agreement, the
intent of the payor must be determined from all the facts and
circumstances of the case, including the complaint filed and
details surrounding the litigation. Robinson v. Commissioner,
supra at 127.3
In Laber v. Commissioner, T.C. Memo. 1997-559, the taxpayer
filed eight EEOC complaints against his former employer. The
settlement agreement did not allocate the damage award, nor did
the taxpayer allege in any of the eight complaints personal
injury or sickness that occurred as a result of the alleged
discrimination. We held the settlement award was not excludable
under section 104(a)(2). Id.
Similarly, petitioner did not allege physical injury or
sickness in her complaints filed with the EEOC. Petitioner,
however, argues that the $71,600 damage award represented
3 Sec. 7491(a), concerning burden of proof, has no bearing
on the underlying substantive issue. Respondent has satisfied
the burden of production with respect to the accuracy-related
penalty under sec. 6662. See sec. 7491(c).
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Last modified: May 25, 2011