Sudhir P. Srivastava and Elizabeth S. Pascual - Page 32

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          therefore on respondent to prove that petitioners were negligent            
          or disregarded rules or regulations.  Rule 142(a).                          
          Punitive Damages                                                            
               The issue of whether punitive damages received in a tort or            
          tortlike suit are excludable from income was resolved by the                
          Supreme Court in O'Gilvie v. United States, 519 U.S. 79, 117 S.             
          Ct. 452 (1996).  Before the Supreme Court's decision, the Courts            
          of Appeals for the Fourth, Ninth, and Tenth Circuits had held               
          that punitive damages are not excluded from income under section            
          104(a)(2), and the Court of Appeals for the Sixth Circuit had               
          held they are excluded.18  Id. at ___, 117 S. Ct. at 454.  The              
          Supreme Court granted certiorari to resolve the conflict among              
          the circuits.  The Supreme Court held that punitive damages                 
          received in a tort suit for personal injuries were not received             
          "on account of" personal injuries and, therefore, were not                  
          excluded from taxable gross income as defined during the years at           
          issue.19  Id.                                                               

               18  See O'Gilvie v. United States, 66 F.3d 1550 (10th Cir.             
          1995), affd. 519 U.S. 79, 117  S. Ct. 452 (1996); Hawkins v.                
          United States, 30 F.3d 1077 (9th Cir. 1994); Horton v.                      
          Commissioner, 33 F.3d 625 (6th Cir. 1994), affg. 100 T.C. 93                
          (1993); Commissioner v. Miller, 914 F.2d 586 (4th Cir. 1990),               
          revg. and remanding 93 T.C. 330 (1989).                                     
               19  The Omnibus Budget Reconciliation Act of 1989 (OBRA),              
          Pub. L. 101-239, sec. 7641(a), 103 Stat. 2379, amended sec.                 
          104(a) by adding the sentence "Paragraph (2) shall not apply to             
          any punitive damages in connection with a case not involving                
          physical injury or physical sickness."  OBRA sec. 7641(b)(2), 103           
          Stat. 2379, provided the amendment shall not apply to any amount            
                                                             (continued...)           




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