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on account of personal injuries and therefore excludable under
section 104(a)(2).
On April 10, 1997, respondent mailed petitioners a
statutory notice of deficiency, determining that the payments
were includable in income for the respective tax years.
OPINION
The issue for our consideration in this case requires an
analysis of whether the payments received fit within the
statutory exclusion provided for in section 104(a)(2). Except
as otherwise specifically provided, gross income includes a
taxpayer’s income from whatever source derived. See sec.
61(a); see also Commissioner v. Glenshaw Glass Co., 348 U.S.
426 (1955). Section 61(a) is broadly construed, whereas
specific exclusions from gross income must be narrowly
construed. See Commissioner v. Schleier, 515 U.S. 323, 327-328
(1995). For 1993 and 1994, section 104(a)(2) specifically
excluded from gross income “the amount of any damages received
(whether by suit or agreement and whether as lump sums or as
periodic payments) on account of personal injuries or
sickness”. Section 1.104-1(c), Income Tax Regs., provides
that “damages received” is an amount received (other than
workmen’s compensation) through prosecution of an action based
upon tort or tort-type rights.
The Supreme Court has held that taxpayers may exclude
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