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injury or physical sickness. * * *
The regulations under section 104(a)(2) restate the statu-
tory language of that section and further provide:
The term “damages received (whether by suit or agree-
ment)” means an amount received (other than workmen’s
compensation) through prosecution of a legal suit or
action based upon tort or tort type rights, or through
a settlement agreement entered into in lieu of such
prosecution. [Sec. 1.104-1(c), Income Tax Regs.]
The Supreme Court summarized the requirements of section
104(a)(2) as follows:
In sum, the plain language of � 104(a)(2), the
text of the applicable regulation, and our decision in
Burke establish two independent requirements that a
taxpayer must meet before a recovery may be excluded
under � 104(a)(2). First, the taxpayer must demon-
strate that the underlying cause of action giving rise
to the recovery is “based upon tort or tort type
rights”; and second, the taxpayer must show that the
damages were received “on account of personal injuries
or sickness.” * * * [Commissioner v. Schleier, supra
at 336-337.]
When the Supreme Court issued its opinion in Commissioner v.
Schleier, supra, section 104(a)(2), as in effect for the year at
issue in Schleier, required, inter alia, that, in order to be
excluded from gross income, an amount of damages had to be
received “on account of personal injuries or sickness.” After
the Supreme Court issued its opinion in Schleier, Congress
amended (1996 amendment) section 104(a)(2), effective for amounts
received after August 20, 1996, by adding the requirement that,
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