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both policies must, therefore, be included in petitioner’s gross
income.5 We disagree.
Section 105(a) provides in general that amounts received by
an employee under accident and health plans funded by the
employer are included in the employee’s gross income. Section
105(c), however, provides an exception to the general rule:
(c) Payments Unrelated To Absence From
Work.--Gross income does not include amounts referred
to in subsection (a) to the extent such amounts--
(1) constitute payment for the permanent
loss or loss of use of a member or function
of the body, or the permanent disfigurement,
of the taxpayer, * * * and
(2) are computed with reference to the
nature of the injury without regard to the
period the employee is absent from work.
As to the first element of section 105(c), injuries
encompassed by the statute fall into three categories: (1) The
permanent loss or loss of use of a member of the body; (2) the
permanent loss or loss of use of a function of the body; and (3)
permanent disfigurement. The third category is inapplicable
because it refers only to external bodily appearance. Petitioner
must fall under one of the first two categories to prevail.
Petitioner bears the burden of disproving respondent’s
5With respect to the Provident policy the parties stipulate
and respondent concedes that the second element of sec. 105(c)
(relating to whether payments are based on the type of injury and
unrelated to absence from work) is satisfied.
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