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Discussion
A. Whether Petitioners Received Prejudgment Interest, and If
So, Whether It Is Excludable From Income Under Section 104
Petitioners contend that (1) their settlement in its
entirety is excludable under section 104(a), (2) they did not
receive prejudgment interest, and (3) if they did receive
prejudgment interest, it is excludable from income under section
104(a)(2). We disagree.
A taxpayer may exclude from income "damages received
(whether by suit or agreement * * *) on account of personal
injuries or sickness". Sec. 104(a)(2). However, prejudgment
interest is not excludable from income under section 104(a)(2).
Rozpad v. Commissioner, 154 F.3d 1, 6-7 (1st Cir. 1998), affg.
T.C. Memo. 1997-528; Kovacs v. Commissioner, 100 T.C. 124 (1993),
affd. without published opinion 25 F.3d 1048 (6th Cir. 1994);
Delaney v. Commissioner, T.C. Memo. 1995-378, affd. 99 F.3d 20
(1st Cir. 1996); Forest v. Commissioner, T.C. Memo. 1995-377,
affd. without published opinion 104 F.3d 348 (1st Cir. 1996).
Respondent's determination is presumed to be correct, and
petitioners bear the burden of proving otherwise. Rule 142(a).
We must decide whether, and, if so, to what extent the
$150,000 settlement petitioner received was prejudgment interest,
and whether it is excludable from income under section 104(a)(2).
3(...continued)
prejudgment interest issue.
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