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a general Federal common law of torts or controlling definitions
in the Internal Revenue Code, we look to State law to determine
the nature of the claim litigated. United States v. Mitchell,
403 U.S. 190, 197 (1971); Erie R.R. v. Tompkins, 304 U.S. 64, 78
(1938).
Although petitioner’s claims for fraud and negligent
misrepresentation may sound in tort, such claims generally
involve economic loss rather than personal injury.7 In that
regard, petitioner testified that his claim against Prudential
arose from lost commissions. He did not offer any alternate
reasons for his dispute and counterclaims with Prudential.
Finally, concerning petitioner’s claim that the settlement
was for punitive damages, section 104(a) as in effect for the
year in issue specifically states that amounts received on
account of personal injuries or sickness “shall not apply to any
punitive damages in connection with a case not involving physical
injury or physical sickness.”8 There is no indication that
petitioner’s settlement was based on physical injury or physical
7 See Prosser, Law of Torts 5, at 683-684 (4th ed. 1971).
8 The 1989 amendment adding this provision is effective for
amounts received after July 10, 1989, unless received (A) under a
written agreement, court decree, or mediation award in effect, or
issued on or before, July 10, 1989, or (B) pursuant to any suit
filed on or before July 10, 1989. Omnibus Budget Reconciliation
Act of 1989, Pub. L. 101-239, sec. 7641, 103 Stat. 2379. Because
the discharge of indebtedness occurred after July 10, 1989, and
was pursuant to an arbitration claim rather than the filing of a
suit, the amendment applies to the discharge of indebtedness.
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