- 8 - amount of damages not in excess of the amount paid for medical care * * * attributable to emotional distress. Legislative history accompanying passage of the SBJPA additionally clarifies that “the term emotional distress includes symptoms (e.g., insomnia, headaches, stomach disorders) which may result from such emotional distress.” H. Conf. Rept. 104-737, at 301 n.56 (1996), 1996-3 C.B. 741, 1041. Regulations promulgated under section 104 further define “damages received (whether by suit or agreement)” as “an amount received (other than workmen’s compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution.” Sec. 1.104-1(c), Income Tax Regs. For purposes of applying the above statutory and regulatory text in effect prior to the SBJPA, the U.S. Supreme Court in Commissioner v. Schleier, supra at 336-337, established a two- pronged test for ascertaining a taxpayer’s eligibility for the section 104(a)(2) exclusion. As stated by the Supreme Court: “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.’” Id. at 337. This test has since been extended to apply to the amended version of section 104, with the corresponding change that the second prong now requires proof that the personalPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011