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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 type
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