Christopher J. and Vickilynn M. McCann - Page 2

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          excludable from income under section 104(a)(2), as petitioners              
          contend, or is interest includable in income under section                  
          61(a)(4), as respondent contends.  We hold that it is interest.             
               Unless otherwise specified, section references are to the              
          Internal Revenue Code in effect for 1994, and Rule references are           
          to the Tax Court Rules of Practice and Procedure.                           
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          Petitioners resided in Slidell, Louisiana, when they filed the              
          A.   The Lawsuits                                                           
               1.   The First $100,000 of Damages                                     
               On June 5, 1985, petitioners filed a medical malpractice               
          lawsuit against Pendleton Memorial Methodist Hospital, et al.               
          (Pendleton Hospital), in the Civil District Court for the Parish            
          of New Orleans, Louisiana (State court).  Louisiana law limits              
          the liability of qualified health care providers for malpractice            
          claims to $100,000, plus interest.  La. Rev. Stat. Ann. sec.                
          40:1299.42(B)(2) (West 2001).  In April 1992, petitioners settled           
          their claim against Pendleton Hospital for $75,000.  This ended             
          the hospital’s liability for the first $100,000 under the                   
          Louisiana Medical Malpractice Act.                                          

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