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rather than the validity of the claim, determines whether the
damages were received on account of tortlike personal injuries.
See Robinson v. Commissioner, supra at 126. The determination of
the nature of the claim is factual and is made by reference to
the settlement agreement in light of the surrounding
circumstances. Id. A key question to ask is: “‘In lieu of what
were the damages awarded?’” Id. (quoting Raytheon Prod. Corp. v.
Commissioner, 144 F.2d 110, 113 (1st Cir. 1944), affg. 1 T.C. 952
(1943)). If the settlement agreement allocates clearly the
settlement proceeds between tortlike personal injury damages and
other damages, the allocation is generally binding for tax
purposes to the extent that the agreement was entered into by the
parties in an adversarial context at arm’s length and in good
faith. If the settlement agreement does not expressly allocate
the settlement between tortlike personal injury damages and other
damages, the intent of the payor must be determined from all of
the pertinent facts and circumstances. Id. at 127. Although the
payee's belief is relevant to this inquiry, the ultimate
character of the payment hinges on the payor's dominant reason
for making the payment. Fono v. Commissioner, supra at 696; see
Amos v. Commissioner, T.C. Memo. 2003-329.
In these cases, the settlement agreement allocated damages
to petitioner under three separate paragraphs. The provisions
are paragraphs 4 through 6 as set forth below:
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