Robert E. Corrigan - Page 15

                                       - 15 -                                         
          Sec. 1.104-1(c), Income Tax Regs.  In the context of a settlement           
          agreement, the nature of the claim that was the basis for a                 
          settlement controls as to the question of whether damages are               
          excludable under section 104(a)(2).  United States v. Burke, 504            
          U.S. 229, 237 (1992).                                                       
               The determination of the nature of a claim is a question of            
          fact.  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).  When a settlement agreement explicitly                    
          allocates settlement proceeds between damages for tort type                 
          personal injuries and other types of damages, that allocation may           
          be respected if a Court finds that it was the product of arm’s-             
          length, adversarial, and good faith negotiations.  Id. at 127.              
               However, where a taxpayer settles contract claims and tort             
          claims for a lump-sum amount and neither the agreement nor other            
          evidence provides a basis to allocate any portion to tort claims            
          for personal injuries, the courts have decided that they are not            
          in a position to be able to make allocations on the parties’                
          behalf.  See Taggi v. United States, 35 F.3d 93, 96 (2d Cir.                
          1994); Reisman v. Commissioner, T.C. Memo. 2000-173, affd. 3 Fed.           
          Appx. 374 (6th Cir. 2001).  Under those circumstances, the                  
          settlement proceeds have been held to be includable in a                    
          recipient’s income.  See, e.g., Morabito v. Commissioner, T.C.              
          Memo. 1997-315.                                                             






Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011