D. Sam Scheele - Page 8

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          trust account in the total amount of $558,438 were made to Weisel           
          in November and December 1989.                                              
          Payment to Petitioner                                                       
               In November and December 1989, pursuant to the Weisel-                 
          petitioner sharing agreement, petitioner received from Weisel               
          payments totaling $279,219 (viz, the Weisel payment).                       
          I.  Deficiency                                                              
               A.  Introduction                                                       
               We must determine whether the Weisel payment is excludable             
          from gross income pursuant to section 104(a)(2).  In pertinent              
          part, section 104(a)(2) provides:  “gross income does not include           
          * * * the amount of any damages received (whether by suit or                
          agreement * * * ) on account of personal injuries or sickness”.             
          Petitioner argues that the Weisel payment is a recovery for                 
          damage to his professional reputation as a result of the problems           
          arising out of the construction and performance of the                      
          cogeneration facility and, thus, is excludable under section                
          104(a)(2) as damages received on account of personal injuries.              
          Petitioner claims that the Weisel payment was made in liquidation           
          of claims asserted in the first complaint against the S-P parties           
          in the Biomass lawsuit.  Respondent argues that the settlement              
          agreement did not settle any claims of personal injury and that             

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