Lance R. and Elaine C. LeFleur - Page 13

                                               - 13 -                                                 
            petitioners' invitation to shift the burden of proof in this case                         
            to respondent.                                                                            
            II.  Excludability of Settlement Proceeds Under Section 104(a)(2)                         
                  Except as otherwise provided, gross income includes income                          
            from all sources.  Sec. 61.  In this regard, statutory exclusions                         
            from income must be narrowly construed.  Commissioner v.                                  
            Schleier, 515 U.S. 232, 115 S. Ct. 2159, 2163 (1995).                                     
                  Under 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".  Section 1.104-1(c), Income Tax                           
            Regs., provides 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."  Thus, an amount may be excluded from gross income                          
            only when it was received both:  (1) Through prosecution or                               
            settlement of an action based upon tort or tort type rights and                           
            (2) on account of personal injuries or sickness.  Sec. 104(a)(2);                         
            O'Gilvie v. United States, 519 U.S. ___, 117 S. Ct. 452, 454                              
            (1996); Commissioner v. Schleier, 515 U.S. at __, 115 S. Ct. at                           
            2164; P & X Mkts., Inc. v. Commissioner, 106 T.C. 441, 443-444                            
            (1996); sec. 1.104-1(c), Income Tax Regs.                                                 
                  Petitioners contend that $800,000 is excludable from gross                          
            income under section 104(a)(2) because the settlement agreement                           

Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011