- 11 - required to report the portion of the recovery paid to his attorneys. Section 104(a)(2) Except as otherwise specifically provided, gross income includes a taxpayer’s income from whatever source derived. See sec. 61(a); see also Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Section 61(a) is broadly construed, whereas specific exclusions from gross income must be narrowly construed. See Commissioner v. Schleier, 515 U.S. 323, 327-328 (1995). For 1994, section 104(a)(2) specifically excluded from gross income “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”. Section 1.104-1(c), Income Tax Regs., provides that “damages received” is an amount received (other than workmen’s compensation) through prosecution of an action based upon tort or tort type rights. When damages are received pursuant to a suit or settlement agreement, the nature of the underlying claim determines whether such damages are excludable under section 104(a)(2). See United States v. Burke, 504 U.S. 229, 239 (1992); see also Metzger v. Commissioner, 88 T.C. 834, 847 (1987), affd. without published opinion 845 F.2d 1013 (3d Cir. 1988). “The critical question is, in lieu of what was the settlement amount paid?” Bagley v. Commissioner, 105 T.C. 396, 406 (1995), affd. 121 F.3d 393 (8thPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011