Eugene Amos, Jr. - Page 10

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          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,             
          in order to be excluded from gross income, any amounts received             
          must be on account of personal injuries that are physical or                
          sickness that is physical.4  Small Business Job Protection Act of           
          1996, Pub. L. 104-188, sec. 1605, 110 Stat. 1755, 1838-1839.  The           
          1996 amendment does not otherwise change the requirements of                
          section 104(a)(2) or the analysis set forth in Commissioner v.              
          Schleier, supra; it imposes an additional requirement for an                
          amount to qualify for exclusion from gross income under that                
          section.                                                                    
               Where damages are received pursuant to a settlement agree-             
          ment, such as is the case here, the nature of the claim that was            
          the actual basis for settlement controls whether such damages are           

               4Sec. 104(a) provides that emotional distress is not to be             
          treated as a physical injury or physical sickness for purposes of           
          sec. 104(a)(2), except for damages not in excess of the amount              
          paid for medical care attributable to emotional distress.  In               
          this connection, the legislative history of the 1996 amendment              
          states:  "It is intended that the term emotional distress in-               
          cludes symptoms (e.g., insomnia, headaches, stomach disorders)              
          which may result from such emotional distress." H. Conf. Rept.              
          104-737, at 301 n.56 (1996), 1996-3 C.B. 741, 1041 n.56.                    





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