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purpose of calculating Federal income tax includes “all income
from whatever source derived”. Sec. 61(a). This definition is
sweeping in scope and exclusions from income are to be narrowly
construed. See Commissioner v. Schleier, 515 U.S. 323, 328
(1995). Further, “exemptions from taxation are not to be
implied; they must be unambiguously proved.”6 United States v.
Wells Fargo Bank, 485 U.S. 351, 354 (1988). The statute and
regulations provide that compensation for services, including
severance or termination pay, is expressly encompassed within the
definition of gross income. See sec. 61(a)(1); sec. 1.61-
2(a)(1), Income Tax Regs.
Section 104 provides for an exclusion from gross income for
certain payments received as compensation for injuries or
sickness. Specifically, section 1047 provides:
SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.
(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
6 No question has been raised with respect to the burden of
proof or production under sec. 7491(a).
7 The 1996 amendments added to sec. 104 by the Small
Business Job Protection Act of 1996, Pub. L. 104-188, sec.
1605(a), 110 Stat. 1838, do not apply because the amendments are
effective for amounts received after Aug. 20, 1996.
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