Alain and Monique Massot - Page 13

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                 Pursuant to section 104(a)(2), gross income does not include                          
           “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”.  The applicable regulations provide                         
           that “The term ‘damages received (whether by suit or agreement)’                            
           means an amount received * * * 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.  A tort is a “‘civil wrong, other                         
           than  breach of contract, for which the court will provide a remedy                         
           in the form of an action for damages.’”  United States v. Burke, 504                        
           U.S. 229, 234 (1992)(quoting Keeton et al., Prosser and Keeton on                           
           the Law of Torts 2 (5th ed. 1984)).  The availability of                                    
           compensatory remedies is critical, see Commissioner v. Schleier,                            
           supra at 333, and such remedies are intended to redress intangible                          
           elements of injury deemed important (even though not pecuniary in                           
           their consequences), including emotional distress, pain and                                 
           suffering, impairment of reputation, personal humiliation, and                              
           mental anguish.  See, e.g., United States v. Burke, supra at 235-                           
           236.  Thus, in order to exclude damages from gross income pursuant                          
           to section 104(a)(2), a taxpayer must prove: (1) The underlying                             
           cause of action 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; Rozpad v.                                   

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