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injuries or sickness are includable in gross income. Section
105(c), however, provides an exception to the general rule:
(c) Payments Unrelated to Absence from Work.--Gross
income does not include amounts referred to in
subsection (a) to the extent such amounts--
(1) constitute payment for the permanent loss or
loss of use of a member or function of the body, or the
permanent disfigurement, of the taxpayer, * * * and
(2) are computed with reference to the nature of
the injury without regard to the period the employee is
absent from work.
Respondent determined that the exception in section 105(c) does
not apply to Mr. Hall and that payments from the Plan constituted
income that should have been reported by petitioners in 1988.
Petitioners bear the burden of proving that they come within the
exception in section 105(c). Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933).
Section 105(e) equates amounts received through accident or
health insurance with amounts received through an accident or
health plan. Section 1.105-5(a), Income Tax Regs., defines the
term "accident or health plan" broadly as
an arrangement for the payment of amounts to employees
in the event of personal injuries or sickness. A plan
may cover one or more employees, and there may be
different plans for different employees or classes of
employees. An accident or health plan may be either
insured or noninsured, and it is not necessary that the
plan be in writing or that the employee's rights to
benefits under the plan be enforceable. * * *
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