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The settlement agreement did not allocate the award to any
specific type of damages. The settlement agreement referenced
the three claims alleged by petitioner in the complaint, and
petitioner alleged that he suffered “extreme humiliation”,
“embarrassment”, and “severe emotional distress” as a result of
Dana’s conduct.
The flush language of section 104(a) provides that “For
purposes of paragraph (2), emotional distress shall not be
treated as a physical injury or physical sickness.” Assuming
petitioner did receive damages for his emotional distress,
humiliation, and embarrassment, that award would not be
excludable under section 104(a)(2). As to his argument that he
received the award on account of personal physical injury, not
only is this argument precluded by the stipulation of facts and
the settlement agreement, but petitioner failed to provide any
documentary or testimonial evidence that Dana compensated him,
through the settlement award, for such an injury.4
We need not address whether “the underlying cause of action
giving rise to the recovery * * * [was] ‘based upon tort or tort
type rights’”, Commissioner v. Schleier, supra at 337, as we find
that the settlement proceeds were not based on personal physical
injuries or sickness. We hold that the $30,211.66 damage award
is not excludable under section 104(a)(2).
4 Sec. 7491(a), concerning burden of proof, has no bearing
on the underlying substantive issue.
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Last modified: May 25, 2011