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received (whether by suit or agreement and whether as lump sums
or as periodic payments) on account of personal injuries or
sickness". The applicable regulations define "damages received"
as “an amount received * * * through prosecution of a legal suit
or action based upon tort or tort type rights”. Sec. 1.104-1(c),
Income Tax Regs.
In United States v. Burke, supra at 237, the Supreme Court
held that to qualify for the section 104(a)(2) income exclusion,
a taxpayer must show that the legal basis for recovery redresses
a “tort-like personal injury”.
In Commissioner v. Schleier, supra at 336, the Supreme Court
concluded that a tort or tort-like claim is a necessary but
insufficient condition for excludability under section 104(a)(2).
The Supreme Court held that excludability under section 104(a)(2)
also requires that the amounts received be “on account of
personal injuries or sickness”, focusing on whether there is
proximate cause between any personal injury and the damages
recovered. Commissioner v. Schleier, supra at 336.
In O’Gilvie v. United States, 519 U.S. 79 (1996), the
Supreme Court revisited this issue. Acknowledging that “the
phrase ‘on account of’ does not unambiguously define itself”, the
Court rejected an interpretation of section 104(a)(2) that would
require no more than a “but-for” connection between personal
injuries and damages received, and instead required a “stronger
causal connection, making the provision applicable only to those
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