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Petitioner relies upon a letter received from his attorney
stating that Prudential was willing to “reclassify the $390,000
dollars [sic] given to you in 1984 as a loan to a punitive damage
settlement award in your lawsuit.” The release, however, states
that the settlement is for all claims that petitioner had
asserted in connection with his employment and his termination.
The release is silent with respect to any allocation to a
particular claim and/or punitive damages.
For the $325,000 to be excluded under section 104(a)(2),
petitioner must meet a two-prong test and demonstrate: (1) That
the underlying cause of action giving rise to recovery is based
upon tort or tort type rights, and (2) that the damages were
received on account of personal injuries. Commissioner v.
Schleier, 515 U.S. 323, 336-337 (1995). Unless both prongs are
met, the payment is not excludable from gross income under
section 104(a)(2). Id.
In that regard, petitioner has not shown that the underlying
cause of action that gave rise to recovery was based upon tort or
tort type rights. Most of petitioner’s claims appear to be on
the basis of contractual rights. A tort is defined as a “‘civil
wrong, other than breach of contract, for which the court will
provide a remedy in the form of an action for damages.’” United
States v. Burke, supra at 234 (quoting Keeton et al., Prosser &
Keeton on the Law of Torts 2 (5th ed. 1984)). In the absence of
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