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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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