- 8 -
included in his gross income only the $665,000 of proceeds which
he received as an award of punitive damages. Petitioner excluded
from his gross income the rest of the settlement proceeds on the
grounds that he had received those amounts as compensation for
personal injuries.
Respondent determined that petitioner could exclude from his
gross income only the following amounts:
Defamation $1,000,000
Emotional distress 500,000
Invasion of privacy 10,000
Total 1,510,000
Respondent determined that petitioner’s gross income includes:
(1) The $2,315,000 that he received for loss of past and future
compensation and employment benefits and (2) the $10,000 that he
received for conversion of personal property.
Discussion
We are faced once again with a determination as to the
taxability of proceeds received through the prosecution or
settlement of a lawsuit. Petitioner obviously wants to maximize
his recovery by paying the least amount of taxes thereon.
Section 104(a)(2) and the regulations thereunder allow him to
exclude from his gross income the proceeds of a settlement when
two conditions are met.2 First, the cause of action giving rise
2 Sec. 104(a)(2) generally 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".
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011