- 7 - petitioners may not exclude the United payments from income under section 104(a)(2) because petitioners have not shown that the United payments were on account of personal injuries or sickness. Petitioners bear the burden of proving that they may exclude the United payments from income under section 104(a)(2).4 Rule 142(a)(1). We agree with respondent for reasons discussed next. Gross income does not include 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. Sec. 104(a)(2). Damages on account of personal injuries include payments intended to compensate for pain and suffering, lost wages recovered by an individual who cannot work due to personal injuries, medical expenses, and other consequential damages. Commissioner v. Schleier, 515 U.S. 323, 329 (1995). To decide whether payments were for personal injuries or sickness, courts have considered, inter alia, the following: (1) The underlying complaint and the nature of the claims; (2) the settlement negotiations and settlement agreement; and (3) the intent of the payor. See United States v. Burke, 504 U.S. 229, 239 (1992); Thompson v. Commissioner, 866 F.2d 709, 711 (4th Cir. 1989), affg. 89 T.C. 632 (1987); Knuckles v. Commissioner, 349 4 Sec. 7491 applies to court proceedings arising in connection with examinations commencing after July 22, 1998. Respondent issued the notices of deficiency in 1997. Thus, petitioners bear the burden of proof. Rule 142(a)(1).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011