-8-
the analysis of the Schleier test. See Tamberella v.
Commissioner, T.C. Memo. 2004-47.
Nature of the Claim
To determine whether the settlement payment is excludable
under section 104(a)(2) and Schleier, the Court must determine
whether the settlement amount was received for claims based upon
tort or tort type rights as well as paid “on account of” personal
physical injuries or sickness. The nature of the claim that was
the basis of the settlement is determinative. United States v.
Burke, supra at 237. The “key question” to be answered is “‘In
lieu of what were the damages awarded?’” Robinson v.
Commissioner, 102 T.C. 116, 126 (1994) (citations omitted), affd.
in part, revd. in part and remanded 70 F.3d 34 (5th Cir. 1995).
This “determination is factual and is generally made by reference
to the settlement agreement in light of the surrounding
circumstances.” Id. (citation omitted). Additionally, the
determination “depends on the nature of the claim” without regard
to the “validity of the claim.” Metzger v. Commissioner, 88 T.C.
834, 847 (1987), affd. without published opinion 845 F.2d 1013
(3d Cir. 1988). Both prongs of the Schleier test are applied in
light of the nature of the claim underlying the settlement.
United States v. Burke, supra at 234.
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