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injuries or physical sickness. Small Business Job Protection Act
of 1996, Pub. L. 104-188, sec. 1605, 110 Stat. 1838. However,
this does not otherwise alter the analysis of Schleier. See
Tamberella v. Commissioner, T.C. Memo. 2004-47, affd. 139 Fed.
Appx. 319 (2d Cir. 2005).
Nature of the Claim
To determine whether the settlement payment is excludable
under section 104(a)(2) and Schleier, the Court must determine
the nature of the claim that was the basis of the settlement.
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) (quoting
Raytheon Prod. Corp. v. Commissioner, 144 F.2d 110, 113 (1st Cir.
1944), affg. 1 T.C. 952 (1943)), affd. in part, revd. in part on
another ground 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 surrounding circumstances.”
Id. Both parts of the Schleier test are applied in the light of
the nature of the claim underlying the settlement. United States
v. Burke, supra at 237.
The Court will assume here, without deciding, that
petitioner’s claims were “based upon tort or tort type rights”.
The next step in the analysis is to examine the second part of
the Schleier test.
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