- 6 - Discussion Section 61 provides that all income, from whatever source derived, is includable in gross income unless specifically excluded by another provision. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955). Compensation for services is specifically included in the definition of gross income. Sec. 61(a)(1); see also Commissioner v. Smith, 324 U.S. 177, 181 (1945) (“any economic or financial benefit conferred on the employee as compensation” is includable in taxable income, whatever the form or mode by which it is effected). With respect to damages, “‘whether a claim is resolved through litigation or settlement, the nature of the underlying action determines the tax consequences of the resolution of the claim.’” Milenbach v. Commissioner, 106 T.C. 184, 198 (1996) (quoting Tribune Publg. Co. v. United States, 836 F.2d 1176, 1177 (9th Cir. 1988)). In characterizing the settlement payment for tax purposes, we ask: “‘In lieu of what were the damages awarded?’” Id. (quoting Raytheon Prod. Corp. v. Commissioner, 144 F.2d 110, 113 (1st Cir. 1944), affg. 1 T.C. 952 (1943)). The settlement here in question resolved petitioner’s lawsuit against Kits for its failure to pay petitioner overtime compensation or wages. The proceeds of the settlement were paidPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011