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OPINION
I. Inclusion v. Exclusion of Petitioner’s Settlement Proceeds
Except as otherwise provided, gross income includes income
derived from all sources. See sec. 61(a); Commissioner v.
Glenshaw Glass Co., 348 U.S. 426 (1955). Section 61(a) is to be
broadly construed; in contrast, statutory exclusions from income
are narrowly construed. See Commissioner v. Schleier, 515 U.S.
323, 336-337 (1995); United States v. Burke, 504 U.S. 229, 233
(1992); Kovacs v. Commissioner, 100 T.C. 124, 128 (1993), affd.
per curiam without published opinion 25 F.3d 1048 (6th Cir.
1994).
One statutory exclusion appears in section 104(a)(2). Under
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”.4 The relevant regulation, sec. 1.104-
1(c), Income Tax Regs., provides in pertinent part as follows:
4 The Small Business Job Protection Act of 1996, Pub. L.
104-188, sec. 1605(a), 110 Stat. 1755, 1838, amended sec.
104(a)(2) to narrow the exclusion for personal injury damages
received pursuant to a judgment or a settlement after Aug. 20,
1996, for taxable years ending after such date. As such, under
the amendment, personal injury or sickness must be physical in
nature. Moreover, the amendment explicitly excepts punitive
damages from the exclusion provided by sec. 104(a)(2). The
amendment, however, does not apply to the year before us and,
therefore, has no bearing on the instant case.
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Last modified: May 25, 2011