E. Pauline Barnes - Page 4

                                        - 4 -                                         
          her gross income.  Respondent determined to the contrary that the           
          proceeds were taxable, and issued a deficiency notice stating so.           
               Respondent's determinations are presumed correct and                   
          petitioner bears the burden of proving the determinations                   
          erroneous.  Welch v. Helvering, 290 U.S. 111, 115 (1933).                   
               Section 61(a) broadly defines gross income as including all            
          income from whatever source derived.  Any exceptions to the                 
          inclusion of items of income as gross income must be narrowly               
          construed.  Commissioner v. Schleier, 515 U.S. ___, ___, 115 S.Ct           
          2159, 2163 (1995);  Commissioner v. Glenshaw Glass Co., 348 U.S.            
          426, 429-430 (1955).                                                        
               Section 104(a)(2) provides that gross income does not                  
          include the amount of any damages received on account of personal           
          injuries or sickness.  The term "damages received" is further               
          defined as 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.              
          Sec. 1.104-1(c), Income Tax Regs. The Supreme Court has                     
          interpreted the foregoing statute and regulation as establishing            
          a two-prong test:                                                           
               [There are] two independent requirements that a                        
               taxpayer must meet before a recovery may be excluded                   
               under section 104(a)(2).  First, the taxpayer must                     
               demonstrate that the underlying cause of action giving                 
               rise to the recovery is "based upon tort or tort type                  
               rights"; and second, the taxpayer must show that the                   
               damages were received "on account of personal injuries                 
               or sickness."  * * *  [Commissioner v. Schleier, 515                   
               U.S. at ___, 115 S. Ct. at 2167.]                                      

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011