Clarence D. Kightlinger - Page 13

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               As an exception to the general rule under section 61(a),               
          section 104(a)(2) provides that gross income does not include               
          "the amount of any damages received (whether by suit or agreement           
          * * *) on account of personal injuries or sickness".  Section               
          1.104-1(c), Income Tax Regs., provides in pertinent part:                   
               (c) Damages received on account of personal                            
               injuries or sickness.  * * *  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.                                                      
               An amount may be excluded from gross income only if it is              
          received both: (1) Through prosecution or settlement of an action           
          based upon tort or tort-type rights; and (2) on account                     
          ofpersonal injuries or sickness.  Commissioner v. Schleier,                 
          supra; Wesson v. United States, 48 F.3d 894, 901-902 (5th Cir.              
          1995); Bagley v. Commissioner, 105 T.C. 396, 416 (1995), affd.              
          121 F.3d 393 (8th Cir. 1997).                                               
          2.  Personal Injury                                                         
               Personal injury need not be purely physical in nature and              
          may include nonphysical emotional injury.  United States v.                 
          Burke, supra; Threlkeld v. Commissioner, 87 T.C. 1294 (1986),               
          affd. 848 F.2d 81 (6th Cir. 1988).  In United States v. Burke,              
          supra at 239, the Supreme Court described the traditional harms             
          associated with personal injury as "pain and suffering, emotional           
          distress, harm to reputation, or other consequential damages                





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