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basis on which petitioner claims the insurance proceeds should be
excluded from petitioner's income.3
Section 104(a)(2) excludes from gross income the amount of
damages received on account of personal injuries or sickness.
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 type
rights, or through a settlement agreement entered into in lieu of
such prosecution. See sec. 1.104-1(c), Income Tax Regs. To
exclude damages from gross income pursuant to section 104(a)(2),
3 Respondent’s brief assumes that petitioner seeks to
exclude the insurance settlement under sec. 104(a)(3). Sec.
104(a)(2) and (3) provides:
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;
(3) amounts received through accident or
health insurance for personal injuries or sickness
(other than amounts received by an employee, to
the extent such amounts (A) are attributable to
contributions by the employer which were not
includible in the gross income of the employee, or
(B) are paid by the employer);
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