- 36 -
the delay in the receipt of a principal amount (the damage
award). Kovacs v. Commissioner, supra at 129.
Furthermore, in Kovacs, we stated that the issue of the
excludability of damages and the interest awarded thereon first
arose in Riddle v. Commissioner, 27 B.T.A. 1339 (1933), which
held, applying the predecessors of sections 61(a) and 104(a)(2),
that interest was not part of damages and is includable in
income. We also stated that since Riddle was decided in 1933, we
have found no cases which suggest that interest paid on an award
of damages received on account of personal injury is excludable
under section 104(a)(2).
Finally, we observed that since Riddle was decided, the
exclusion for personal injury damages has been reenacted and
amended numerous times; nevertheless, the statute continues to
exclude only "damages" and omits any reference to "interest",
which implies a continuing acceptance by Congress of the existing
interpretation of the exclusion.
Accordingly, we find that there was no substantial authority
for petitioners' reporting position for the interest portion of
the settlement amount they received in 1991.
Reasonable Cause and Good Faith Exception
Section 6664(c)(1) provides that the penalty under section
6662(a) shall not apply to any portion of an underpayment if it
is shown that there was reasonable cause for the taxpayer's
position with respect to that portion and that the taxpayer acted
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