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expenses) for any prior taxable year, gross income does
not include--
* * * * * * *
(2) 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;
The reference to personal injuries in this former version of the
statute did not include purely economic injuries but did embrace
“nonphysical injuries to the individual, such as those affecting
emotions, reputation, or character”. United States v. Burke,
supra at 235 n.6, 239; see also Commissioner v. Schleier, supra
at 329-331.
The SBJPA then amended section 104, as relevant here, to
provide:
SEC. 104. COMPENSATION FOR INJURIES OR SICKNESS.
(a) In General.--Except in the case of amounts
attributable to (and not in excess of) deductions
allowed under section 213 (relating to medical, etc.,
expenses) for any prior taxable year, gross income does
not include--
* * * * * * *
(2) the amount of any damages (other than
punitive damages) received (whether by suit or
agreement and whether as lump sums or as periodic
payments) on account of personal physical injuries
or physical sickness;
* * * * * * *
* * * For purposes of paragraph (2), emotional distress
shall not be treated as a physical injury or physical
sickness. The preceding sentence shall not apply to an
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Last modified: May 25, 2011