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Amounts received by an employee under accident or health
insurance funded by the employer are generally also includable in
a taxpayer's income. Sec. 105(a). Section 105(c), however,
permits the exclusion from gross income of payments from accident
or health insurance if the following two requirements are met:
(1) The payments are for the permanent loss or loss of use of a
member or function of the body, or permanent disfigurement, of
the taxpayer, his spouse, or a dependent; and (2) the payments
are computed with reference to the nature of the injury without
regard to the period the employee is absent from work. Amounts
received through an accident or health plan are generally equated
with amounts received through accident or health insurance. Sec.
105(e).
For petitioners to properly exclude their pension
distributions from income, they must first show that the amounts
petitioner received were received through accident or health
insurance or through an employee's accident or health plan for
personal injury or sickness. See sec. 105(a), (e)(1); sec.
1.105-5(a), Income Tax Regs. They must also prove that the
amounts constituted payment for the permanent loss or loss of use
of a member or function of petitioner's body under section
105(c)(1). And, finally, they must demonstrate that the amount
of the payments was "computed with reference to the nature of the
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Last modified: May 25, 2011