Joseph Tamberella - Page 5

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          determining whether damages received are excludable under section           
          104(a)(2).  United States v. Burke, 504 U.S. 229, 237 (1992).               
          The underlying claim giving rise to the recovery must be “based             
          upon tort or tort type rights” and the damages must have been               
          received “on account of personal injuries or sickness”.                     
          Commissioner v. Schleier, 515 U.S. 323, 336 (1995).  Section                
          104(a)(2) was amended in 1996, effective for amounts received               
          after August 20, 1996, to require that personal injury or                   
          sickness be physical in nature; this amendment does not otherwise           
          change the analysis under Commissioner v. Schleier, supra.                  
          Prasil v. Commissioner, T.C. Memo. 2003-100, n.10.  We note that            
          for purposes of section 104(a)(2), emotional distress shall not             
          be treated as a physical injury or physical sickness except for             
          any damages that are not in excess of the amount paid for medical           
          care attributable to such emotional distress.  Sec. 104(a).                 
               Petitioner’s complaint alleged four causes of action,                  
          negligence, breach of contract, breach of public policy, and                
          wrongful discharge.  Of these four causes of action, only                   
          negligence could satisfy the second prong of the Commissioner v.            
          Schleier, supra, analysis, which requires that damages must have            
          been received “on account of personal [physical] injury or                  
          [physical] sickness”.  The settlement agreement did not allocate            
          any portion of the settlement amount in issue to personal                   
          physical injury or physical sickness.  Rather, the settlement               






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