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nexus, or “direct causal link”, between the amount paid and the
asserted physical injury. See Lindsey v. Commissioner, 422 F.3d
684, 688 (8th Cir. 2005) (“We agree with the Tax Court that these
health symptoms [i.e., fatigue, indigestion, insomnia, and
incontinence] relate to emotional distress, and not to physical
sickness.”), affg. T.C. Memo. 2004-113; Banaitis v. Commissioner,
340 F.3d 1074, 1080 (9th Cir. 2003), affg. in part and revg. in
part on a different issue T.C. Memo. 2002-5; Allum v.
Commissioner, T.C. Memo. 2005-177 (“The mere mention of ‘personal
physical injury’ in a complaint does not, by itself, serve to
exclude the recovery from gross income under section
104(a)(2)”.).
Judicial approbation of express settlement allocations for
Federal income tax purposes is also not warranted where
circumstantial factors reveal that the designation of the
settlement proceeds was not the result of adversarial, arm’s
length, and good faith negotiations, and is incongruous with the
“economic realities” of the taxpayer’s underlying claims. See
Bagley v. Commissioner, supra at 406-410.
Notably, the final sentence of section 104(a) subsumes
within the scope of the section 104(a)(2) exclusion settlement
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