Reina Martinez - Page 4

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               Except as otherwise provided, gross income includes income             
          from all sources.  Sec. 61; Commissioner v. Glenshaw Glass Co.,             
          348 U.S. 426 (1955).  While section 61(a) is to be broadly                  
          construed, statutory exclusions from income must be narrowly                
          construed.  Commissioner v. Schleier, 515 U.S. ___, 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.  Commissioner v.           
          Schleier, 515 U.S. at ___, 115 S. Ct. at 2166-2167.                         
               Where amounts are received pursuant to a settlement                    
          agreement, the nature of the claim that was the actual basis for            
          settlement controls whether such amounts are excludable under               
          section 104(a)(2).  United States v. Burke, 504 U.S. 229, 237               
          (1992); Robinson v. Commissioner, 102 T.C. 116, 126 (1994), affd.           

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