Phyllis Herrmann Witcher - Page 10




                                       - 10 -                                         
          shall not be treated as a physical injury or physical sickness,             
          except to the extent of any damages not in excess of the amount             
          paid for medical care attributable to the emotional distress.               
          Sec. 104(a).  Damages received that are excludable from gross               
          income include an amount received through a settlement agreement            
          entered into in lieu of prosecution of a legal suit or action               
          based upon tort or tort type rights.  Sec. 1.104-1(c), Income Tax           
          Regs.                                                                       
               While the defamation and emotional distress causes of action           
          alleged in the lawsuit complaint are injuries personal to                   
          petitioner, see, e.g., Threlkeld v. Commissioner, 87 T.C. 1294,             
          1299 (1986), affd. 848 F.2d 81 (6th Cir. 1988); Freeman v.                  
          Commissioner, T.C. Memo. 2001-254 (breaching implied covenant of            
          good faith is not a personal injury), we are unable to find that            
          any portion of the settlement was paid to petitioner as                     
          compensation for physical injury or physical sickness.  The                 
          settlement document pursuant to which the lawsuit was settled               
          does not provide the basis for the parties’ settlement.                     
          Petitioner has not argued that she received the $1,500 settlement           
          on account of a physical injury or physical sickness.  Sec.                 
          104(a)(2).  We conclude that section 104(a)(2) is not applicable            
          to exclude the $1,500 payment received from gross income because            
          petitioner did not receive the settlement on account of a                   
          physical injury or physical sickness.  Respondent is sustained              
          with respect to this issue.                                                 




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011