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Petitioners have raised a variety of arguments that the
payments by the insurance companies do not constitute gross
income. They contend that the factual situation here is
analogous to the situation where an insured automobile is damaged
in an accident. The insurance company insuring the vehicle pays
the body shop for the cost of the repairs, and, in such a
situation, the payments do not constitute gross income to the
vehicle owner. Moreover, petitioners argue, the payments at
issue were not unemployment benefits, and, additionally, since
the insurance payments approximately equaled the interest due on
the credit card liabilities and portions of the insurance
premiums, petitioners realized no economic benefits from the
insurance payments because the debts on each credit card remained
unpaid, and for which they remained liable. Finally, petitioners
argue that they were not the beneficiaries on the insurance
contracts, and the banks were the beneficiaries. Because
petitioners were not beneficiaries under the terms of the
insurance contracts, petitioners contend the amounts paid by the
insurance companies were not a benefit to them.
Section 61 provides that gross income includes "all income
from whatever source derived," unless otherwise provided. The
Supreme Court has consistently given this definition of gross
income a liberal construction "in recognition of the intention of
Congress to tax all gains except those specifically exempted."
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Last modified: May 25, 2011