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to that decision, Congress amended section 104(a)4 to provide
that amounts are excludable only if received "on account of
personal physical injuries or physical sickness". Sec. 104(a)(2)
(emphasis added). The flush language in section 104(a) further
provides that "emotional distress shall not be treated as a
physical injury or physical sickness".
Under section 104(a)(2), as amended and in effect for 1997,
the mediation agreement pursuant to which the $60,000 was paid to
petitioner clearly was not a settlement of personal physical
injuries or physical sickness. The agreement is very explicit to
the effect that the payment was in consideration of (1) the
resignation of petitioner as an employee of DFAS, and (2)
petitioner's agreement not to file suit against DFAS for
violations of the Civil Rights Act of 1964. Petitioner, however,
sustained a personal injury in 1994 in the course of her
employment; however, that injury is not addressed in the
mediation agreement, and, moreover, petitioner was otherwise
compensated for that injury through worker's compensation
benefits she was receiving at the time of the agreement and even
at the time of trial. Petitioners argue that, because Standard
Form 50 is attached to the mediation agreement, the language in
4 Small Business Job Protection Act of 1996, Pub. L. 104-
188, sec. 1605, 110 Stat. 1838, effective for amounts received
after Aug. 20, 1996.
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