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Thus, we are convinced from the record as a whole that the
entire amount of the $50,000 proceeds was intended to settle
petitioner’s sexual harassment claims, as those claims are
reflected in the original complaint. Consequently, no portions
of the proceeds received under the settlement agreement are
damages received “on account of personal physical injuries or
physical sickness”, sec. 104(a)(2), and no portions of the
proceeds are excludable from petitioner’s gross income under
section 104(a)(2).
Petitioner makes various arguments concerning injuries, both
physical and psychological, which she asserts were caused by her
employment with the May Company. Petitioner points to
psychological counseling that she received prior to entering into
the settlement agreement. Petitioner also argues that her
emotional distress caused physical ailments which became manifest
after she entered into the agreement. To this effect, petitioner
provided evidence that she visited a physician in 2002 and 2003
for treatment of abdominal pain and related conditions. As
discussed above, damages received for certain medical care for
the treatment of emotional distress may be excludable under
section 104(a)(2).1 However, the record indicates that the
1The legislative history accompanying passage of the
amendment to section 104(a)(2) clarifies that “the term emotional
distress includes symptoms (e.g., insomnia, headaches, stomach
disorders) which may result from such emotional distress.” H.
(continued...)
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