What does dennis rodman have to do with your settlement agreements?

In Amos v. Commissioner of Internal Revenue, the United States Tax Court stated that “if a settlement agreement lacks express language stating what the amount paid pursuant to the agreement was to settle, the intent of the payor is critical to that determination.” As most personal injury attorneys understand, the correct “intent” is very important to memorialize your settlement documents because IRC § 104(a)(2) provides that “gross income does not include the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sum or as periodic payments) on account of personal physical injuries or physical sickness.”

The Court in Amos found that the dominant reason the Defendant, Dennis Rodman, paid plaintiff the settlement amount at issue was to compensate petitioner for his alleged physical injuries arising from an incident. However, the Court also found that the settlement was in consideration for several other requirements (mainly a confidentiality agreement.) Since the settlement agreement identified those “other requirements” as consideration for the settlement proceeds, the Court classified 20% of the settlement proceeds as non-physical injuries which meant they were included as the Plaintiff’s gross income and not exempt from IRC § 61 (the general taxing statute).

The Garretson Resolution Group (“GRG”) has long served as Settlement Administrator for the courts and privately for settling parties. We have extensive knowledge and experience in delivering successful closure to settlements. We provide this practice tip to help the settlement community avoid the problem illustrated in Amos.


Among the tips included in this pamphlet are:

  • What are the key takeaways from Amos and what are the main factors which led the Court to determine that the parties did not intend for all of the settlement proceeds to be allocated for payment on account of personal physical injuries?
  • What two methods does GRG recommend in drafting the Confidentiality Section of a Settlement Agreement in order to avoid the reallocation problem in Amos?
  • How to ensure that there is no mistaking the parties’ intent that a de minimus amount of the settlement is to be paid in exchange for the Releasor’s promise to hold the settlement confidential to the extent permitted by law.