- 10 - when (1) the underlying cause of action giving rise to the recovery is based on tort or tortlike rights and (2) the damages are received on account of personal injuries or sickness. See, e.g., O’Gilvie v. United States, 519 U.S. 79 (1996); Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995); sec. 1.104-1(c), Income Tax Regs. The term “damages received”, as used in section 104(a)(2), is defined as an amount received “through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution.” Sec. 1.104-1(c), Income Tax Regs. If the damages are received pursuant to a settlement agreement, as in this case, the nature of the claim that was the basis for the settlement controls whether damages are excludable under section 104(a)(2). See United States v. Burke, 504 U.S. 229, 237(1992); Bagley v. Commissioner, 105 T.C. 396, 406 (1995), affd. 121 F.3d 393 (8th Cir. 1997). The determination of the nature of a claim is a question of fact and is generally made by reference to the settlement agreement in light of the surrounding circumstances. See, e.g., 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);Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011