-6-
T.C. Memo. 2003-240; see also Shaltz v. Commissioner, T.C. Memo.
2003-173; Henderson v. Commissioner, T.C. Memo. 2003-168, affd.
___ Fed. Appx. ___ (9th Cir., July 16, 2004); Prasil v.
Commissioner, T.C. Memo. 2003-100.
When the amounts are received as part of a settlement
agreement, it is the nature of the claim that was the basis for
the settlement that controls whether such amounts are excludable
under section 104(a)(2). United States v. Burke, 504 U.S. 229,
237 (1992). This determination is factual and should be made in
light of 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). The critical question to be asked is: "In lieu
of what was the settlement paid?" Bagley v. Commissioner, 105
T.C. 396, 406 (1995), affd. 121 F.3d 393 (8th Cir. 1997). All
relevant facts and circumstances surrounding the drafting of the
settlement agreement should be used to make this determination.
Id.
"If the settlement agreement lacks express language stating
that the payment was (or was not) made on account of personal
injury, then the most important fact in determining how section
104(a)(2) is to be applied is 'the intent of the payor' as to the
purpose in making the payment." Metzger v. Commissioner, 88 T.C.
834, 847-848 (1987) (quoting Knuckles v. Commissioner, 349 F.2d
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