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petitioner and Winston, however, included a release for
defamation and loss of personal reputation, negligent infliction
of emotional distress, and other personal injuries.
Petitioner’s bases for section 104 treatment, over time,
have been inconsistent. In a June 8, 1998, letter to the
Commissioner’s examining agent, petitioner claimed that the cause
of his defamation and diminishment of personal reputation claim
was certain improprieties of Winston’s managing partner at the
time petitioner left the firm. That position changed for
purposes of trial. In addition, the record reflects that the
improprieties of Winston’s managing partner were not disclosed
until approximately 2 years after petitioner left Winston.
During May 1994, Winston’s managing partner resigned. Petitioner
proposed defamation and loss of personal reputation as part of
the personal injury clause on August 6, 1993. This was
approximately 9 months before the former managing partner’s
improprieties were known to petitioner. Accordingly, his
administrative position before the Internal Revenue Service (IRS)
was an afterthought and lacked verity.
Even if we were to hold that petitioner’s IIED tort claim
was bona fide, it must also be shown that the settlement amount
was paid “on account of personal injuries”. Personal injuries
that may be excluded from gross income under section 104(a)(2),
can include harms that are tangible, intangible, physical and
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