- 5 - payments. Respondent did not make an adjustment in the statutory notice of deficiency with respect to this issue. By amended answer, respondent asserts that petitioners must include in gross income the principal portions of the payments, $8,511 in 1996 and $10,034 in 1997. Discussion Gross income generally includes income from whatever source derived, unless excluded by statute. Sec. 61(a). The exclusion upon which petitioners rely in this case is that of section 104(a)(2), which excludes from gross income “the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness.”1 The Supreme Court, in Commissioner v. Schleier, 515 U.S. 323 (1995), summarized the requirements of section 104(a)(2) as follows: In sum, the plain language of � 104(a)(2), the text of the applicable regulation, and our decision in Burke establish two independent requirements that a taxpayer must meet before a recovery may be excluded under � 104(a)(2). First, the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is “based upon tort or tort type rights”; and second, the taxpayer must show that the damages were received “on account of personal injuries or sickness.” * * * 1Sec. 104(a)(2) was amended by the Small Business Job Protection Act of 1996, Pub. L. 104-188, sec. 1605, 110 Stat. 1755, 1838. We apply the statute as it was in effect prior to amendment because the payments in this case were received pursuant to a court decree issued before September 13, 1995. Id. sec. 1605(d)(2), 110 Stat. 1838.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011