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for services, which by regulation includes severance or
termination pay, is expressly encompassed within this broad
definition. See sec. 61(a)(1); sec. 1.61-2(a)(1), Income Tax
Regs.
Section 104, in contrast, provides otherwise with respect to
compensation for injuries or sickness and, in pertinent part,
reads as follows:
SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.
(a) In General.--Except in the case of amounts
attributable to (and not in excess of) deductions
allowed under section 213 (relating to medical, etc.,
expenses) for any prior taxable year, gross income does
not include--
* * * * * * *
(2) 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 104(a)(2) was amended by section 1605(a) of the Small
Business Job Protection Act of 1996, Pub. L. 104-188, 110 Stat.
1755, 1838, generally effective for tax years beginning after
December 31, 1996.)
Regulations promulgated under section 104 further define
“damages received (whether by suit or agreement)” as “an amount
received (other than workmen’s compensation) through prosecution
of a legal suit or action based upon tort or tort type rights, or
through a settlement agreement entered into in lieu of such
prosecution.” Sec. 1.104-1(c), Income Tax Regs.
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Last modified: May 25, 2011