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OPINION
Applicable Statute
Section 61(a) includes in gross income “all income from
whatever source derived” unless otherwise provided. Section
104(a)(2) provides otherwise. Before it was amended by the Small
Business Job Protection Act of 1996 (SBJPA), Pub. L. 104-188,
sec. 1605, 110 Stat. 1838, section 104(a)(2) excluded from gross
income amounts received on account of personal injuries or
sickness. While the reference to personal injuries or sickness
did not include damages received pursuant to the settlement of
purely economic rights, it did include “nonphysical injuries to
the individual, such as those affecting emotions, reputation, or
character”. United States v. Burke, 504 U.S. 229, 236 n.6
(1992); see Robinson v. Commissioner, 102 T.C. 116, 126 (1994),
affd. in part and revd. in part on another issue 70 F.3d 34 (5th
Cir. 1995); see also Fono v. Commissioner, 79 T.C. 680, 692
(1982), affd. without published opinion 749 F.2d 37 (9th Cir.
1984).
On August 20, 1996, the SBJPA amended section 104(a)(2) to
exclude from gross income “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”. SBJPA sec.
1605(a), 110 Stat. 1838. The flush language of 104(a) explains
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Last modified: May 25, 2011