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OPINION
Settlement Proceeds
Respondent determined that petitioners are not entitled to
exclude the settlement amount from income because it was not
received on account of any personal physical injury or physical
sickness. Petitioners contend that the settlement payments are
excludable under section 104(a)(2) because they were received on
account of petitioner’s physical injury. Specifically,
petitioners argue that the “lawsuit was settled only after there
was a specific agreement to allow an amendment to petitioner’s
complaint to include a claim for physical injury, and that the
reason the case was able to settle was because a payment was
going to be made and received on that basis.”
In this case, petitioners have neither argued that section
7491 is applicable to shift the burden of proof to respondent nor
established that they complied with the requirements of section
7491(a)(2)(A) and (B). The resolution of this issue does not
depend on which party has the burden of proof. We resolve this
issue on the preponderance of the evidence in the record.
Section 61(a) includes in gross income "all income from
whatever source derived" unless otherwise provided. Section
104(a)(2), however, excludes from gross income "the amount of any
damages (other than punitive damages) received (whether by suit
or agreement and whether as lump sums or as periodic payments) on
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Last modified: May 25, 2011