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Prejudgment Interest
The trial court awarded petitioner prejudgment interest of
$10,823,954 on his fraud claim, and $121,941 on a claim of breach
of employment agreement, of which petitioners excluded
$10,823,954 on their 1990 Federal income tax return.
Notice of Deficiency
In the notice of deficiency, respondent determined that the
amounts USI paid petitioner on his claims for fraud and
interference with business relationship were not on account of
personal injury or sickness within the meaning of section 104(a),
and consequently were includable in petitioners’ 1990 taxable
income. Respondent also determined that all amounts of
prejudgment interest received were includable in petitioners’
taxable income.
OPINION
A. Exclusion of Damages Under Section 104
1. In General
Gross income includes income from whatever source derived.
Sec. 61(a). Statutory exclusions from income are narrowly
construed. Commissioner v. Schleier, 515 U.S. 323, 327 (1995);
United States v. Burke, 504 U.S. 229, 233 (1992); Commissioner v.
Glenshaw Glass Co., 348 U.S. 426, 431 (1955); Helvering v.
Clifford, 309 U.S. 331, 334 (1940).
One such statutory exclusion appears in section 104(a)(2),
which excludes from gross income "the amount of any damages
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Last modified: May 25, 2011