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represents “a litigation settlement of [petitioner’s] claims
against [ATC].” This is the amount in issue. The settlement
agreement provides that petitioner “agrees to waive any right to
reinstatement”. The settlement agreement specifies that the
parties agree that the $89,840 will be reported by ATC on a “Form
1099” and that petitioner “acknowledges that some or all of the
monies” may be considered taxable.
The $89,840 was reported by ATC to the Internal Revenue
Service on a Form 1099-MISC, Miscellaneous Income, as nonemployee
compensation. Petitioner did not report this amount on his 1997
Federal income tax return.
Petitioner contends that the $89,840 is excludable from his
income because such amount constitutes “proceeds from a lawsuit
settlement petitioner received from a former employer for medical
conditions of a permanent and dibilating [sic] nature.”
Section 7491(a) does not affect the outcome because
petitioner’s liability for the deficiency is decided on the
preponderance of the evidence.
Section 61(a) provides that gross income includes all income
from whatever source derived unless excludable by a specific
provision of the Code. Section 104(a)(2) excludes from gross
income amounts received in damages, by suit or settlement, for
personal physical injuries or physical sickness. The nature of
the claim underlying the damage award is the focus for
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Last modified: May 25, 2011