- 5 -
Respondent asserts that the $5,000 payment represents a
payment in settlement of a lawsuit brought by petitioner for
wrongful discharge from employment by petitioner’s former
employer; therefore, the settlement proceeds are not excludable
from gross income under section 104(a)(2) and are taxable.
Discussion
Section 104(a)(1) and (2)
Pursuant to section 104(a)(1), amounts received under
“workmen’s compensation acts” as compensation for personal
injuries or sickness are excludable from gross income. This
section applies to amounts received pursuant to a workmen’s
compensation act or a statute in the nature of a workmen’s
compensation act which provides compensation to employees for
personal injuries or sickness incurred in the course of
employment, but it does not apply to a nonoccupational injury or
sickness. Sec. 1.104-1(b), Income Tax Regs.
Under section 104(a)(2), gross income does not include
income received as damages (other than punitive damages) received
(whether by suit or agreement) on account of personal physical
injuries or physical sickness.1 “Damages received” is defined as
1 Sec. 104(a)(2) was amended by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1605(a), 110 Stat.
1838, effective for amounts received after Aug. 20, 1996. When
Congress amended sec. 104(a)(2), it further limited the exclusion
from gross income for damages received because of a nonphysical
injury. Because petitioner claims a physical injury is at the
foundation of his cause of action, we may consider the prior
statute, regulations, and caselaw for guidance.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011