Wade H. Griffin, III - Page 11




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          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 (8th             






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