Opinion ID: 2600653
Heading Depth: 4
Heading Rank: 1

Heading: Whitworth's Intent in Settling the Claim

Text: ¶ 23 The intent of the payor in settling a claim is one of the most important considerations in determining the underlying nature of a settlement. See Knuckles v. Comm'r, 349 F.2d 610, 613 (10th Cir.1965) (holding that settlement proceeds were not for personal injury claim where the payor did not acknowledge possible liability for personal injury and in fact consistently denied such liability); Hawkins v. Comm'r, 94 T.C.M. (CCH) 310, 312 (2007) (We determine the reason for the settlement payment by ascertaining the intent of the payor in making the payment.). ¶ 24 Typically, the intent of the payor is determined from the language of the settlement agreement. In this case, however, the settlement agreement was confidential. The parties have not provided us with complete copies of the settlement, and the portion contained in the record is silent as to Whitworth's intent. In such cases, other courts have looked to the factual circumstances surrounding the settlement to determine the payor's intent. See, e.g., Gibson v. Comm'r, 94 T.C.M. (CCH) 164, 167 (2007); Connolly v. Comm'r, 93 T.C.M. (CCH) 1138, 1140 (2007). ¶ 25 In this case, Whitworth's tax filings indicate that Whitworth intended the settlement to compensate the Mandells for amounts wrongfully withheld in connection with the original sale of HAU. Whitworth asserted a claim of right [2] on his 2001 federal income tax return. [3] The claim of right sought reimbursement for the tax that Whitworth paid in 1998 on the inflated amount he received in connection with the original sale. Whitworth sought a similar adjustment from the state of Utah. Whitworth's assertion of these claims reflects his intention that the settlement reimburse the Mandells for proceeds that Mandell should have received in connection with the original sale.