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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.]
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