- 6 -
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”. The regulations provide that
The term “damages received (whether by suit or
agreement)” means 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. Thus, damages may be excluded
from gross income only if petitioner shows that (1) the
underlying cause of action giving rise to the recovery is based
upon tort or tort type rights, and (2) the damages were received
on account of personal injuries or sickness. See Commissioner v.
Schleier, supra at 336-337; Wesson v. United States, 48 F.3d 894,
901-902 (5th Cir. 1995); Bagley v. Commissioner, 105 T.C. 396,
416 (1995), affd. 121 F.3d 393 (8th Cir. 1997).
When damages are received pursuant to a suit or settlement
agreement, the nature of the underlying claim determines whether
such damages are excludable under section 104(a)(2). See United
States v. Burke, 504 U.S. 229 (1992); Thompson v. Commissioner,
866 F.2d 709, 711 (4th Cir. 1989), affg. 89 T.C. 632 (1987);
Robinson v. Commissioner, 102 T.C. 116, 126 (1994), affd. in
part, revd. in part, and remanded on another ground 70 F.3d 34
(5th Cir. 1995). Determining the nature of the claim is a
factual inquiry. See Bagley v. Commissioner, supra at 406;
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011