- 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