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Original award Percentage1 Settlement
Damages $120,000 57.4712643 $105,662
Interest 88,800 42.5287356 78,190
Total $208,800 100.0000000 $183,852
1 Rounded.
Respondent allowed the Woodses to deduct legal fees of
$25,143 under section 212(1). The parties do not dispute this
amount.
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 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).
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Last modified: May 25, 2011