Joyce M. and Thomas J. Hamm - Page 7

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          Brennan v. Commissioner, T.C. Memo. 1997-317; Morabito v.                   
          Commissioner, T.C. Memo. 1997-315; Keel v. Commissioner, T.C.               
          Memo. 1997-278; Webb v. Commissioner, T.C. Memo. 1996-50.                   
               In deciding the instant motion for summary judgment, we must           
          examine whether respondent has established that, as a matter of             
          law, petitioners are not entitled to exclude the ITO payment from           
          gross income pursuant to section 104(a)(2).  Except as otherwise            
          provided, gross income includes income from all sources.  Sec.              
          61(a); 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, 328 (1995).                         
               Section 104(a)(2) provides that 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.  Accordingly, to           
          exclude damages received by settlement agreement from gross                 
          income pursuant to section 104(a)(2), the taxpayer must establish           
          that:  (1) The cause of action giving rise to the recovery is               
          "based upon tort or tort type rights", and (2) the damages were             

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