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In order to qualify for this exception, the payments to
petitioner must satisfy both conditions. We find that the
payments fail to satisfy section 105(c)(2); therefore, we need
not, and do not, decide whether they satisfy section 105(c)(1).
Section 105(c)(2) itself has two parts that must be
satisfied: The payments to the taxpayer must be computed with
reference to the nature of the injury, and they must be computed
without regard to the period the taxpayer is absent from work.
With respect to the first part, the Court of Appeals for the
Fourth Circuit, to which an appeal in this case would lie, has
stated as follows:
A review of the cases indicates that for payments to be
excludable from income under section 105(c), the instrument
or agreement under which the amounts are paid must itself
provide specificity as to the permanent loss or injury
suffered and the corresponding amount of payments to be
provided. * * * exclusion is permitted only under plans
which vary benefits to reflect the particular loss of bodily
function. * * *
Rosen v. United States, 829 F.2d 506, 509 (4th Cir. 1987).5
There is nothing in the disability plan that computes payments
with reference to the nature of the injury. Indeed, regardless
of the injury, a person receiving benefits for total disability
under the disability plan gets a monthly payment equal to 60
percent of monthly earnings. Thus, payments under the disability
plan are not “computed with reference to the nature of the
5 It may be noted that our own precedent accords with Rosen
v. United States, 829 F.2d 506 (4th Cir. 1987). Hines v.
Commissioner, 72 T.C. 715, 720 (1979).
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