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compensation for personal injuries or sickness. However,
petitioners do not argue on brief that the amount they received
from DHS in 1996 is excludable under section 104(a)(1) as an
amount received under a workers’ compensation act.15
Petitioners argue that the amount Mr. Forste received from
DHS pursuant to the settlement agreement is excludable under
section 104(a)(2). Pursuant to section 104(a)(2), gross income
does not include the amount of any damages received on account of
personal injuries or sickness, regardless of whether the amount
is received by suit or agreement and whether received in lump
sums or as periodic payments. Damages are excludable under
section 104(a)(2) provided: (1) The underlying cause of action
is based upon tort or tort type rights; and (2) the damages were
15The regulations promulgated under sec. 104(a)(1) exclude
amounts received under a statute in the nature of a workers’
compensation act which provides compensation to employees for
personal injuries or sickness incurred in the course of
employment. Sec. 1.104-1(b), Income Tax Regs. Mr. Forste did
not file a claim for workers’ compensation benefits. Petitioners
did not offer any evidence that they had any arguable claim
against DHS for workers’ compensation, nor do they make any
argument on brief that the amount at issue was received under a
workers’ compensation act. The amount in issue was received
under a settlement agreement between DHS and Mr. Forste. An
agreement standing alone does not qualify as a “statute” for
purposes of the regulations under sec. 104(a)(1). See Wallace v.
United States, 139 F.3d 1165, 1167 (7th Cir. 1998) (“courts have
always emphasized that the phrases ‘workers’ compensation acts’
and ‘statute in the nature of a workmen’s compensation act’ refer
exclusively to legislative and administrative enactments”);
Rutter v. Commissioner, 760 F.2d 466, 468 (2d Cir. 1985), affg.
T.C. Memo. 1984-525.
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