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When damages are received pursuant to a settlement
agreement, the nature of the claim that was the actual basis for
settlement controls whether such amounts are excludable under
section 104(a)(2). United States v. Burke, 504 U.S. 229, 233
(1992); Prasil v. Commissioner, supra. The determination of the
nature of the claim is a factual inquiry and is generally made by
reference to the settlement agreement. Robinson v. Commissioner,
102 T.C. 116, 126 (1994), affd. in part and revd. in part 70 F.3d
34 (5th Cir. 1995). If the settlement agreement lacks express
language stating what the settlement amount was paid to settle,
we look to the intent of the payor, based on all the facts and
circumstances of the case, including the complaint that was filed
and the details surrounding the litigation. Knuckles v.
Commissioner, 349 F.2d 610, 613 (10th Cir. 1965), affg. T.C.
Memo. 1964-33; Allum v. Commissioner, supra.
Here, the settlement agreement provides that SCOE will pay
petitioner $50,000 in exchange for her resignation and a release
of claims. The settlement agreement does not mention
petitioner’s diabetes or other ailments. Instead, it refers
generally to “Disputes and disagreements” between the parties and
contains boilerplate language that releases SCOE from “any and
all claims” by petitioner.
Looking beyond the settlement agreement, we likewise find no
indication that SCOE intended the $50,000 to compensate
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