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agreement expressly provided that the $89,840 would be reported
to the Internal Revenue Service on a Form 1099 and that some or
all of that amount may be taxable. In the settlement agreement,
the parties characterized the $89,840 payment as “a litigation
settlement of [petitioner’s] claims against [ATC].”
Where a settlement agreement is silent with respect to
precisely what the settlement amount is paid to settle, the
intent of the payor is examined. 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 (2d Cir. 1961), affg. per
curiam T.C. Memo. 1960-21). This examination is made based on
all the surrounding facts and circumstances. Robinson v.
Commissioner, 102 T.C. 116, 127 (1994), affd. in part and revd.
in part on another ground 70 F.3d 34 (5th Cir. 1995).
There is no question that petitioner provided ATC’s attorney
with his 1996 medical records concerning his hospitalization for
mental illness and high blood pressure. But there is nothing in
the record that establishes that ATC intended that any portion of
the $89,840 settlement amount paid to petitioner was on account
of personal physical injury or physical sickness. Rather, the
record reveals that this amount reflects petitioner and ATC’s
settlement discussions about the amount to be paid to petitioner
to waive reinstatement of employment. A letter, written by ATC’s
attorney to petitioner, states in pertinent part:
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Last modified: May 25, 2011