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Seay v. Commissioner, 58 T.C. 32, 37 (1972). The ultimate
character of the payment hinges on the payor’s dominant
reason for making the payment. See Fono v. Commissioner,
79 T.C. 680, 696 (1982), affd. without published opinion
749 F.2d 37 (9th Cir. 1984); Agar v. Commissioner, 290
F.2d 283, 284 (2d Cir. 1961), affg. per curiam T.C. Memo.
1960-21; Amos v. Commissioner, T.C. Memo. 2003-329.
As stated above, respondent’s motion for summary
judgment asks the Court to hold that “none of the payments
made in settlement of Campbell v. State Farm are [sic]
excludable from gross income under section 104(a)(2).”
Respondent’s motion argues that this holding is required
because Campbell v. State Farm was an action for breach
of contract. According to respondent, “payments made in
settlement of breach of contract suits are specifically
excluded from the definition of damages which might
qualify for exclusion under the provisions of I.R.C. sec.
104(a)(2).” Thus, respondent asks the Court to hold that
the settlement proceeds at issue do not qualify for
exclusion under section 104(a)(2) solely because the
lawsuit which was settled, Campbell v. State Farm, was a
breach of contract suit.
We disagree. The type of lawsuit, by itself, does
not determine whether a payment in settlement of the
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