- 6 -
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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Last modified: May 25, 2011