Sam Ervin and Ella M. Ervin, et al. - Page 7




                                        - 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