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As a general rule, section 104(a)(3)4 excludes from gross
income compensation received through accident or health insurance
for personal injuries or sickness. See sec. 104(a)(3); sec.
1.104-1(a), Income Tax Regs. Similar treatment is accorded to
amounts received under accident or health plans or from sickness
or disability funds. See Trappey v. Commissioner, 34 T.C. 407
(1960)(disability income is received through accident or health
insurance for personal injuries or sickness within meaning of
sec. 104(a)(3)); sec. 1.104-1(d), Income Tax Regs.; see also sec.
105(e)(1)(for purposes of secs. 104 and 105, amounts received
under an accident or health plan for employees are treated as
amounts received through accident or health insurance); sec.
1.105-5, Income Tax Regs. However, the parenthetical language of
section 104(a)(3) provides an exception for amounts received by
an employee to the extent they either are paid directly by the
4SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.
(a) In General.-- * * * gross income does
not
include--
* * * * * * *
(3) amounts received through accident or
health insurance * * * for personal injuries or
sickness (other than amounts received by an employee,
to the extent such amounts (A) are attributable to
contributions by the employer which were not includible
in the gross income of the employee, or (B) are paid by
the employer);
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Last modified: May 25, 2011