- 6 -
either requirement is not met. See sec. 104(a)(2);
Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995); United
States v. Burke, 504 U.S. 229, 233 (1992); sec. 1.104-1(c),
Income Tax Regs.
In O'Gilvie v. United States, 519 U.S. 79 (1996), the
Supreme Court held that section 104(a)(2) did not reach punitive
damages which were awarded under Kansas law to the taxpayers, the
husband and two children of a woman who died of toxic shock
syndrome. The taxpayers had recovered those damages in a tort
action filed against the maker of a product that caused the
decedent's death. The Court held that the taxpayers did not
receive the punitive damages on account of personal injury
because the damages were not awarded as compensation for the
injury suffered by them or by the decedent but to punish and
deter the tortfeasor's reprehensible conduct. See id.
Petitioner recognizes the holding in O'Gilvie v. United
States, supra, but argues that it is inapplicable. First,
petitioner states, South Carolina law provides that punitive
damages are compensatory in nature, whereas Kansas law provides
that punitive damages are entirely punitive. Second, petitioner
states, the fact that many decisions prior to O'Gilvie were
inconsistent with the decision there requires that we apply
O'Gilvie prospectively. Petitioner makes a similar argument for
a prospective application of Commissioner v. Schleier, supra, and
United States v. Burke, supra.
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