- 9 -
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 personal injuries or sickness for which the damages were
received were physical in nature. See, e.g., Venable v.
Commissioner, T.C. Memo. 2003-240, and cases cited therein.
B. Analysis
1. Tort or Tort Type Rights
As indicated above, the first requirement for the section
104(a)(2) exclusion is that the claim underlying the funds
received must be based on tort or tort type rights. Commissioner
v. Schleier, supra at 337. A “tort” is defined as a “‘civil
wrong, other than breach of contract, for which the court will
provide a remedy in the form of an action for damages.’” United
States v. Burke, supra at 234 (quoting Prosser and Keeton on the
Law of Torts 2 (1984)).
Where amounts are received pursuant to a settlement
agreement, the nature of the claim that was the actual basis for
the settlement controls excludability. Stocks v. Commissioner,
98 T.C. 1, 10 (1992); Metzger v. Commissioner, 88 T.C. 834, 847
(1987), affd. without published opinion 845 F.2d 1013 (3d Cir.
1988). The claim must be bona fide, but it need not be
sustainable or valid. Taggi v. United States, 35 F.3d 93, 96 (2d
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011