- 8 - income. According to respondent, petitioner has not established that this amount was received as damages on "account of personal injuries", as defined under section 104(a)(2). Petitioner disagrees, arguing that the settlement was meant to address a plethora of tort claims against ABMI, including "wrongful termination of employment under California law * * * retaliatory discharge, First Amendment claims, malicious prosecution, defamation, disparagement, trade libel, emotional distress, and national origin discrimination." Although section 61(a) defines gross income to include "all income from whatever source derived," an exception may be found under section 104(a)(2) and the regulations thereunder. Section 104(a)(2) provides that "the amount of any damages received (whether by suit or agreement * * *) on account of personal injuries or sickness" is excludable from gross income. Section 1.104-1(c), Income Tax Regs., provides that: The term "damages received (whether by suit or agreement)" means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution. In determining whether a settlement payment was intended to compensate for personal injuries, we are not concerned with the validity of the claims settled by the settlement or legal suit. Seay v. Commissioner, 58 T.C. 32, 37 (1972). Rather, we focus on the nature of the matter settled. Id. For purposes of section 104(a)(2), we look to State law (here, California law) to decidePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011