James A. Picard - Page 7

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          of the aforementioned exceptions is contained in section 104,               
          which excludes from gross income certain compensation for                   
          injuries or sickness.  Section 104(a)(1) provides:                          
                    SEC. 104(a). In General.--Except in the case of amounts           
               attributable to (and not in excess of) deductions allowed              
               under section 213 (relating to medical, etc., expenses) for            
               any prior taxable year, gross income does not include--                
                         (1) amounts received under workmen's compensation            
                    acts as compensation for personal injuries or sickness            
                    * * *                                                             
          The regulations further provide that the exclusion under section            
          104(a)(1) applies in the case of amounts received "under a                  
          statute in the nature of a workmen's compensation act which                 
          provides compensation to employees for personal injuries or                 
          sickness incurred in the course of employment."  Sec. 1.104-1(b),           
          Income Tax Regs.  Whether a statute is in the nature of workmen's           
          compensation depends upon whether payments under the statute are            
          made because of injuries sustained in the line of duty.  Dyer v.            
          Commissioner, 71 T.C. 560, 562 (1979).  Finally, of most                    
          significance to the issue in this case, the regulations under               
          section 104 limit the scope of the exclusion under section                  
          104(a)(1) as follows:                                                       
               section 104(a)(1) does not apply to a retirement pension or            
               annuity to the extent that it is determined by reference to            
               the employee's age or length of service,  * * *  even though           
               the employee's retirement is occasioned by an occupational             
               injury or sickness.  [Sec. 1.104-1(b), Income Tax Regs.]               
               Respondent does not dispute that the injuries suffered by              
          petitioner were sustained in the line of duty and indeed has                

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