Phyllis Herrmann Witcher - Page 9




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          T.C. Memo. 1990-310.  Respondent’s determination with respect to            
          this issue is sustained.                                                    
          2.   Lawsuit Settlement                                                     
               In 1994, petitioner filed a complaint in the United States             
          District Court for the Eastern District of Pennsylvania against             
          the Wilmington Trust Company and other parties for breach of                
          contract, breach of the implied covenant of good faith and fair             
          dealing, defamation due to reporting a charge-off to a credit               
          reporting service, fraud, and the intentional infliction of                 
          emotional distress.  Pursuant to a settlement of the lawsuit                
          petitioner received $1,500 in 1998.  The parties’ basis for                 
          settlement is not set forth in the settlement document.                     
               Respondent determined in the notice of deficiency that the             
          payment received in settlement of the lawsuit was includable in             
          petitioner’s income.                                                        
               Gross income does not include the amount of any damages                
          (other than punitive damages) received, whether by suit or                  
          agreement, and whether as lump sums or periodic payments, on                
          account of personal physical injuries or physical sickness.  Sec.           
          104(a)(2).4  For purposes of paragraph (2), emotional distress              


               4  Prior to the amendment of sec. 104(a)(2) by the Small               
          Business Job Protection Act of 1996, Pub. L. 104-188, sec.                  
          1605(a), 110 Stat. 1838-1839, effective for amounts received                
          after Aug. 20, 1996, gross income did not include damages                   
          received on account of personal injuries or sickness.  Personal             
          injuries included nonphysical injuries.  Commissioner v.                    
          Schleier, 515 U.S. 323, 329 n.4 (1995) (citing United States v.             
          Burke, 504 U.S. 229, 235 n.6 (1992)).                                       




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