- 7 - entitled to claim legal fees in the amount of $40,620 as a miscellaneous itemized deduction. OPINION Issue 1. Excludability of Settlement Proceeds The first issue for decision is whether petitioner is entitled to exclude from gross income, pursuant to section 104(a)(2), amounts received in settlement of a class action suit. Petitioner contends that she is so entitled. Respondent disagrees. Except as otherwise provided, gross income includes income from all sources. Sec. 61; Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-430 (1955). Although section 61(a) is to be broadly construed, statutory exclusions from income must be narrowly construed. Commissioner v. Schleier, 515 U.S. 323, 327-328 (1995). Pursuant to 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". The regulations provide that "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." Sec. 1.104- 1(c), Income Tax Regs. Thus, in order to exclude damages from gross income pursuant to section 104(a)(2), the taxpayer must prove that: (1) The underlying cause of action is based upon tort or tort typePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011