Kevin Wade Hamblin - Page 11




                                       - 10 -                                         

          consequential damages (e.g., a ruined credit rating)", the                  
          Supreme Court has distinguished such personal injuries from                 
          "legal injuries of an economic character" such as those arising             
          out of the unlawful deprivation of the opportunity to earn wages            
          through a wrongful termination.  United States v. Burke, 504 U.S.           
          229, 239, 245 (1992).  Damages received for lost wages in                   
          connection with the settlement of economic rights, such as those            
          arising out of a breach of contract, are not excludable from                
          income under section 104(a)(2).  See Robinson v. Commissioner,              
          102 T.C. 116, 126 (1994), affd. in part, revd. in part on another           
          issue 70 F.3d 34 (5th Cir. 1995).                                           
               Section 1.104-1(c), Income Tax Regs., provides:  "The term             
          'damages received (whether by suit or agreement)' means an amount           
          received * * * through prosecution of a legal suit or action                
          based upon tort or tort type rights, or through a settlement                
          agreement entered into in lieu of such prosecution."  Thus, in              
          order to exclude damages from gross income pursuant to section              
          104(a)(2), the taxpayer must prove:  (1) The underlying cause of            
          action is "based upon tort or tort type rights", and (2) the                
          damages were received "on account of personal injuries or                   
          sickness".  Commissioner v. Schleier, supra at 336-337.                     
               Where amounts are received pursuant to a settlement                    
          agreement, the nature of the claim that was the actual basis for            
          settlement controls whether such amounts are excludable from                





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  Next

Last modified: May 25, 2011