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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 is
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