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Since the City's contributions for petitioner's long-term
disability coverage were not includable in petitioner's income,
see sec. 106, and since the City made all of the contributions
toward petitioner's long-term disability coverage from at least
January 1991 to the date of petitioner's disability, it follows
that the long-term disability benefits received by petitioner
from the plan are not excluded from his gross income under
section 104(a)(3). Rather, the benefits must be included in
petitioner's gross income under section 105(a) unless the
requirements of section 105(c) are satisfied.
Petitioner argues, in essence, that both his short-term and
long-term disability benefits are excludable from his gross
income under section 105(c). Respondent contends that section
105(c) does not apply. We agree with respondent.
Section 105(c) sets forth an exception to the general
inclusionary rule of section 105(a). It provides that gross
income does not include amounts received through accident or
health insurance for personal injuries or sickness to the extent
the amounts (1) constitute payment for the permanent loss or loss
of use of a member or function of the body of the employee, and
(2) are computed with reference to the nature of the injury
without regard to the period of time the employee is absent from
work. See also sec. 1.105-3, Income Tax Regs.
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