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OPINION
Except as otherwise provided, gross income includes income
from whatever source derived. See sec. 61(a); Commissioner v.
Glenshaw Glass Co., 348 U.S. 426 (1955). The term “gross income”
is broadly construed. Commissioner v. Schleier, 515 U.S. 323,
327-328 (1995). Generally, severance pay fits within the
definition of gross income. See, e.g., Taggi v. United States,
35 F.3d 93 (2d Cir. 1994); Glynn v. Commissioner, 76 T.C. 116
(1981) affd. without published opinion 676 F.2d 682 (1st Cir.
1982).
On the other hand, 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”. Sec. 104(a)(2). To qualify for exclusion
under that section, “damages” must be "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.
Under section 104(a)(2), a taxpayer may exclude damages from
income only if: (1) The underlying claim that gave rise to the
damages was 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 333-334; Bagley
v. Commissioner, 105 T.C. 396, 416 (1995), affd. 121 F.3d 393
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Last modified: May 25, 2011