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MISC for 1994 showing that it had paid him nonemployee
compensation of $59,163 suggests that Xircom thought those
amounts were a substitute for wages. Lost wages are not excluded
from income under section 104(a)(2) when received as damages
“pursuant to the settlement of economic rights arising out of a
contract”. Robinson v. Commissioner, 102 T.C. 116, 126 (1994),
revd. on an issue not relevant herein 70 F.3d 34 (5th Cir. 1995).
In contrast, lost wages recovered on behalf of an individual who
is unable to work because of a personal injury, such as an
automobile accident, may be excludable. See Commissioner v.
Schleier, 515 U.S. 323, 329-330 (1995).
Petitioner points out that Hamby testified in an earlier
deposition that Xircom made the payments to prevent further harm
to petitioner. Petitioner contends that Hamby’s use of the term
“harm” shows that the payments were for personal injury or
sickness. We disagree. We believe the “harm” Hamby referred to
was the loss of wages.
Hamby and Holliday testified that Xircom paid petitioner
solely to replace wages that he would have earned. Xircom had no
financial interest in the characterization of its payments to
petitioner because it could deduct them whether or not petitioner
could exclude them from income. We find the testimony of Hamby
and Holliday to be credible.
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