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"beginning and end" of the analysis. Under the holding in the Schleier case,
once it is determined that the nature of the claim is based on a "tort or tort
type right", it is necessary to further determine whether the amounts received
were "on account of personal injuries or sickness."
The Supreme Court has made it clear in the Schleier case that damages
which are not compensatory but punitive in nature are not excludable from
gross income under section 104(a)(2). The Supreme Court stated:
We agree with * * * [the taxpayer] that if Congress had
intended the ADEA's liquidated damages to compensate plaintiffs
for personal injuries, those damages might well come within
section 104(a)(2)'s exclusion. There are, however, two weaknesses
in
* * * [the taxpayer's] argument. First, even if we assume that
Congress was aware of the Court's observation in Overnight Motor
that the liquidated damages authorized by the FLSA might provide
compensation for some "obscure" injuries, it does not necessarily
follow that Congress would have understood that observation as
referring to injuries that were personal rather than economic.
Second, and more importantly, we have previously rejected * * *
[the taxpayer's] argument: We have already concluded that the
liquidated damages provisions of the ADEA were a significant
departure from those in the FLSA, see Lorillard v. Pons, 434 U.S.
at 581, 98 S.Ct., at 870; Trans World Airlines, Inc. v. Thurston,
469 U.S. at 126, 105 S.Ct., at 624, and we explicitly held in
Thurston: "Congress intended for liquidated damages to be
punitive in nature." Id., at 125, 105 S.Ct., at 624.
Our holding in Thurston disposes of * * * [the taxpayer's]
argument and requires the conclusion that liquidated damages under
the ADEA, like back wages under the ADEA, are not received "on
account of personal injury or sickness." [Fn. refs. omitted]
Commissioner v. Schleier, 515 U.S. , 115 S.Ct. at 2165.
It is clear from this paragraph that if punitive damages are not of a
compensatory nature, they are not excludable under section 104(a)(2). The
Supreme Court in the Schleier case left open when punitive or exemplary
damages under a particular Federal or State law are intended to be
compensatory. We, therefore, look to the State law to determine whether the
punitive damages petitioner received were compensatory in nature.
The present case involves Iowa law. See Bagley v. Iowa Beef Processors,
Inc., 797 F.2d 632 (8th Cir. 1985). Under Iowa law, it is clear that punitive
damages are to punish the person who is liable for injury and set an example
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