- 5 - Kenneth did not report the payments on his returns. He died on July 14, 1995, a resident of Pennsylvania. OPINION Section 104(a)(2) provides that 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”. Thus, a taxpayer may exclude a recovery from gross income when he can show 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.’” Commissioner v. Schleier, 515 U.S. 323, 337 (1995) (quoting United States v. Burke, 504 U.S. 229, 234 (1992)). The estate contends that the settlement payments were damages received on account of personal injuries and, thus, are excludable pursuant to section 104(a)(2). Respondent contends that the $104,000 payments are not excludable because they were received on account of economic, rather than personal, injuries. Respondent further contends that no personal injury was alleged in a complaint by Kenneth. In support of his contentions, respondent asserts that the Orphans’ Court did not have jurisdiction over tort damages and that Kenneth “could not have recovered personal injury damages had he actually filed a RICO complaint.” We reject respondent’s contentions. Our focus isPage: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011