Reginald James Smith - Page 6
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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, 237
(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 Onyx will pay
petitioner $41,651.81 in exchange for petitioner’s release and
discharge of all claims against Onyx. The settlement agreement
does not mention any physical injury or sickness. It refers
generally to “all issues and claims” surrounding petitioner’s
employment at Onyx, and releases Onyx from “all claims, rights,
demands, actions, obligations, and causes of action of any and
every kind, known or unknown” by petitioner.
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Last modified: November 10, 2007