- 6 - whether petitioners properly excluded the $500,000 payment from gross income. Petitioners bear the burden of proof. Rule 142(a). B. General Rules Section 61(a) provides that, except as otherwise provided, “gross income” means “all income from whatever source derived”. Sec. 61(a). With an exception not here relevant, section 104(a)(2) provides that “the amount of any damages received (whether by suit or agreement * * * ) on account of personal injuries or sickness” is excludable from gross income. The regulations promulgated under section 104(a)(2) provide: “The term ‘damages received (whether by suit or agreement)’ means an amount received (other than workmen’s compensation) 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. To determine whether any payment received in settlement of a lawsuit is excludable under section 104(a)(2), we consider the nature of the claim that was the basis for the settlement, not the validity of the claim. E.g., Metzger v. Commissioner, 88 T.C. 834, 847 (1987), affd. without published opinion 845 F.2d 1013 (1988). “If the settlement agreement lacks express language stating that the payment was (or was not) made on account of personal injury, then the most important fact in determining how section 104(a)(2)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011