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Id. at 336-337. Amounts received as punitive damages are not
received “on account of personal injuries or sickness” and thus
are not excludable from gross income under section 104(a)(2).
O’Gilvie v. United States, 519 U.S. 79, 101 (1996).
Prior to the Supreme Court’s decision in Schleier, this
Court had held that damages received under a 42 U.S.C. sec. 1983
(hereinafter referred to as sec. 1983) claim are excludable from
income under section 104(a)(2). Bent v. Commissioner, 87 T.C.
236 (1986), affd. 835 F.2d 67 (3d Cir. 1987). See also Metzger
v. Commissioner, 88 T.C. 834 (1987), affd. without published
opinion 845 F.2d 1013 (3d Cir. 1988). In Bent, the taxpayer was
a high school teacher who had brought suit after the school board
had declined to rehire him. He sued the school board for breach
of contract and various sec. 1983 claims. After a court had
rejected all of the taxpayer’s claims except a sec. 1983 claim
based on a violation of the First Amendment right to free speech,
the taxpayer settled the case. This Court held that the
settlement payment received by the taxpayer was excludable from
income under section 104(a)(2). In so holding, the Court found
that, under the circumstances of the case, the taxpayer’s
recovery of lost wages was an element of the compensatory damages
available under sec. 1983 and was not an independent basis for
recovery. The Third Circuit affirmed, expressing agreement with
our reasoning and conclusions.
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