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However, section 104(a)(2) excludes from gross income certain
amounts received on account of personal physical injury or
sickness. The provision reads in pertinent part:
SEC. 104(a). In General.--Except in the case of
amounts attributable to (and not in excess of) deductions
allowed under section 213 (relating to medical, etc.,
expenses) for any prior taxable year, gross income does not
include--
* * * * * * *
(2) the amount of any damages (other than punitive
damages) received (whether by suit or agreement and
whether as lump sums or as periodic payments) on
account of personal physical injuries or physical
sickness;
* * * * * * *
* * * For purposes of paragraph (2), emotional distress
shall not be treated as a physical injury or physical
sickness. The preceding sentence shall not apply to an
amount of damages not in excess of the amount paid for
medical care (described in subparagraph (A) or (B) of
section 213(d)(1)) attributable to emotional distress.1
1Section 104(a) was amended by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1605(a), 110 Stat.
1755, 1838. Prior to amendment, it read in pertinent part:
SEC. 104(a). In General.--Except in the case of
amounts attributable to (and not in excess of) deductions
allowed under section 213 (relating to medical, etc.,
expenses) for any prior taxable year, gross income does not
include--
* * * * * * *
(2) 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;
(continued...)
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Last modified: May 25, 2011