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correct when filed and [he] removed the penalties but * * *
that Petitioner still owed the tax."
The proffered testimony would be immaterial to the
issues in this case. As we have often observed, a trial
before this Court is a proceeding de novo in which our
determination as to a taxpayer's tax liability must be
based on the merits of the case and not any record
developed at the administrative level. See, e.g.,
Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324,
328 (1974). Accordingly, we properly quashed the subject
subpoenas.
Whether Petitioners May Exclude From Gross Income the
Entire Amount of the Jury Award Under Section 104(a)(2)
The first substantive issue in this case is whether
petitioners are entitled to exclude from their gross income
for 1994 the amount of the judgment awarded in petitioner's
suit against Thrifty, $314,173.91. Petitioners argue that
their gross income does not include any part of that amount
by reason of section 104(a)(2). During 1994, that
provision stated: "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
regulations promulgated under section 104(a)(2) make clear
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