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exact total amount reflected in the Agreement. Both the
Satisfaction of Judgment document and the $195,477 check issued
by the State's Insurance specifically reflect that payment was in
satisfaction of the court judgment. The Agreement and the
Satisfaction of Judgment documents simply acknowledge that the
doctor, the Doctor's Insurance, and the State's Insurance
satisfied their respective financial liabilities under the
$170,000 court judgment.
Because Louisiana courts are required to award prejudgment
interest on damages awarded relating to personal injuries,
petitioners argue that, for income tax purposes, compulsory
prejudgment interest should be eligible for exclusion under
section 104(a)(2). Interest, however, is separate and distinct
from damages and generally is awarded to compensate for delay in
payment. See Rozpad v. Commissioner, 154 F.3d at 6. Although
petitioner, under Louisiana law, may have received prejudgment
interest automatically as a result of her medical malpractice
claim, under the Internal Revenue Code that income is
nevertheless taxable as interest income.
Although the court judgment amount of $170,000 clearly
reflects income from personal injuries within the scope of
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Last modified: May 25, 2011