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Thus, if you find that the plaintiffs have shown
by a preponderance of the evidence, that the defendant
converted the plaintiffs' money with malice, ill will,
a conscious indifference to the rights of others, or a
reckless disregard for the rights of others, you may
award the plaintiffs punitive damages.
If you so find, it becomes your right to award
punitive damages in such an amount as you unanimously
agree to be proper in light of the character of the
wrong committed, the punishment which should be
applied, and the ability of the defendant to pay.
The jury found against Academy on the conversion claim and
awarded $25,390 in actual damages for unpaid commissions and
$250,000 in punitive damages, together with interest and costs.
That verdict was affirmed upon appeal.
Academy paid $250,000 in punitive damages to petitioner in
1992. Petitioner did not report any of this amount on his 1992
Federal income tax return.
Discussion
We must decide whether petitioner received the punitive
damages on account of a personal injury. To the extent that he
did, the funds are excludable from his gross income. See sec.
104(a)(2). To the extent that he did not, the funds are
includable in his gross income. See sec. 61(a). Because
respondent determined that the punitive damages are includable in
petitioner's gross income, petitioner must prove otherwise. See
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Petitioner concedes that his gross income includes the
actual damages of $25,390 which were awarded to him for unpaid
commissions. As to the punitive damages, petitioner argues that
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