Robert C. Sodoma and Gwen A. Sodoma - Page 5

                                        - 5 -                                         

               Under section 104(a)(2), gross income does not include:                
               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.                 
               Section 1.104-1(c), Income Tax Regs, provides:                         
                    (c) Damages received on account of personal                       
               injuries or sickness.  * * *  The term "damages                        
               received (whether by suit or agreement)" means an                      
               amount received * * * 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.                                                      
               Thus, an amount may be excluded from gross income only when            
          it was received both: (1) through prosecution or settlement of an           
          action based upon tort or tort type rights; and (2) on account of           
          personal injuries or sickness.  Commissioner v. Schleier, 515               
          U.S. at    , 115 S. Ct. at 2166-2167; Wesson v. United States, 48           
          F.3d 894, 901-902 (5th Cir. 1995); Bagley v. Commissioner, 105              
          T.C. 396, 416 (1995).                                                       
               Where damages are received pursuant to a settlement                    
          agreement, as is the case herein,3 the nature of the claim that             
          was the actual basis for settlement controls whether such damages           

          3  In response to a concern of petitioners, we note that we                 
          consider the release agreement to be a settlement or settlement             
          agreement.  See, e.g., Black's Law Dictionary at 1372 (6th ed.              
          1990) (defining "settle" as "A word of equivocal meaning; meaning           
          different things in different connections, and the particular               
          sense in which it is used may be explained by the context or the            
          circumstances").  In any event, whatever the semantical                     
          description of the release, the focus is on the actual terms of             
          the document.                                                               

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  Next

Last modified: May 25, 2011