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attorneys signed the settlement agreements. Later in February
1994, Ervin and Hudson each received net settlement proceeds of
$166,573.10, and Echols received net settlement proceeds of
$166,556.60. Ervin and Echols did not report the settlement
proceeds on their 1994 Federal income tax returns, and Hudson did
not file a 1994 return.
Respondent determined that Ervin and Hudson had unreported
income of $333,333, and Echols had unreported income of $332,991
in 1994.
OPINION
A. Contentions of the Parties and Background
Petitioners contend that the amounts that they received from
United in 1994 are excludable from gross income as compensation
for personal injuries or sickness under section 104(a)(2).3
Petitioners contend that they suffered personal injuries due to
United’s conduct and that the settlement amounts were intended to
compensate them for those injuries. Respondent contends that
3 Sec. 104(a)(2) provides:
SEC. 104(a). In General.--Except in the case of
amounts attributable to (and not in excess of)
deductions allowed under section 213 (relating to
medical, etc., expenses) for any prior taxable year,
gross income does not include--
* * * * * * *
(2) the amount of any damages received
(whether by suit or agreement and whether as
lump sums or as periodic payments) on account
of personal injuries or sickness; * * *
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