Edward A. and Audrey Primozic, et al . - Page 6




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               The only issue for our consideration is whether the payments           
          petitioners received for participating in the MSTP program are              
          excludable from their income for 1993.  Section 61 includes in              
          gross income all income from whatever source derived.  However,             
          section 104(a)(2) provides that the amount of damages received              
          (whether by suit or agreement) on account of personal injuries or           
          sickness is not included in gross income.  The damages referred             
          to are based upon tort or tort type rights.  See sec. 1.104-1(c),           
          Income Tax Regs.                                                            
               Petitioners argue that IBM’s decision to surplus the CBD               
          department, which prevented Edward and Kenneth from working on              
          the NACO contract, injured their business reputations.4                     
          Therefore, petitioners conclude that the settlement proceeds were           
          excludable as damages for personal injuries.5  In order for                 
          petitioners’ section 104(a)(2) claim to prevail, they must show             
          that IBM made the MSTP payments in order to settle petitioners’             
          claims for personal injuries.  It is the payor’s intent in making           
          the payments, rather than whether or not the taxpayer actually              
          suffered a personal injury, that is determinative for purposes of           
          section 104(a)(2). See Stocks v. Commissioner, 98 T.C. 1, 10                


               4 To the extent we do not address any of petitioners’ other            
          arguments, we find them to be without merit.                                
               5 Petitioners have failed to explain how Thomas, who was not           
          even a part of the CBD department, was injured by IBM’s decision            
          to surplus the department.                                                  




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