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104(a)(2), the Supreme Court in Schleier had concluded that
although the taxpayer’s “unlawful termination may have caused him
some pain, suffering and emotional distress such as that suffered
by an automobile accident victim, no personal injury had been
suffered affecting the amount of back wages recovered.” Id. at
1267 (emphasis added). The Court of Appeals further noted that
in O’Gilvie v. United States, 519 U.S. 79 (1996), the Supreme
Court had revisited, in the context of an award of punitive
damages, the causal analysis mandated by Schleier and had
rejected a “but-for” causal analysis in favor of an
“interpretation under which only those damages were excludable
that were awarded ‘by reason of’ or ‘because of’ the personal
injuries.” Fabry v. Commissioner, 223 F.3d at 1269 n.25. The
Court of Appeals stated:
O’Gilvie is consistent with Schleier because punitive
damages do not bear the direct causal link with the
victim’s personal injury since the amount of punitive
damages awarded generally varies positively with the
degree of the tortfeasor’s conduct, not with the extent
of the injury sustained. * * * [Id. at 1270 n.25;
emphasis added.]
On the basis of the Court of Appeals’ analysis in Fabry of
these Supreme Court precedents, then, it would appear that the
“direct causal link” between damages awarded and personal
injuries sustained depends, at least in part, on whether personal
injuries sustained affected the amount of damages received. As
previously discussed, petitioners have failed to show that the
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