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injuries or sickness. Petitioner’s argument was addressed and
rejected by the Supreme Court in O’Gilvie v. United States, 519
U.S. 79, 89-90 (1996).
Petitioner has gone to great lengths in his attempt to
support his interpretation, including citations and references to
judicial commentary, syntax doctrines, and comparisons to other
sections of the Internal Revenue Code. However, the Supreme
Court has held that section 104(a)(2) does not exclude punitive
damages from income even if awarded in a case involving physical
injuries or sickness. Id.
Furthermore, petitioner’s award of punitive damages was not
intended to compensate for physical injuries. The punitive
damages were intended to punish BCal and MBL and to deter them
from future misconduct. When awarding petitioner punitive
damages, the jury found that the employees of BCal and MBL were
guilty of wanton misconduct and acted within the scope of their
employment. Accordingly, we find petitioner’s statutory
interpretation is flawed.
To exclude his punitive damages from income, petitioner must
satisfy section 104(a)(2) and the two-prong Schleier test.
However, we have already held that while the damages arose from
tort-based claims, they were not on account of physical injuries
or sickness. Therefore, petitioner’s punitive damages are not
excludable from his gross income.
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