Michael Thomas Prasil and Lori Lynn Prasil - Page 11

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          Schleier, 515 U.S. 323, 336 (1995), established those                       
          requirements as:                                                            
               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.”                         
          Under the 1996 amendment, the personal injury or sickness for               
          which the damages are received must be physical in nature.                  
               In the present case, Mrs. Prasil received the $7,650                   
          settlement payment pursuant to a settlement agreement with                  
          Heartland.  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 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, Knuckles v. Commissioner, 349 F.2d 610,            
          613 (10th Cir. 1965), affg. T.C. Memo. 1964-33 (citing Agar v.              
          Commissioner, 290 F.2d 283, 284 (2d Cir. 1961), affg. per curiam            
          T.C. Memo. 1960-21), based on all the facts and circumstances of            
          the case, including the complaint filed and details surrounding             






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