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the focus is the nature of the claim underlying the damage award.
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, 336-337 (1995).
Section 1.104-1(c), Income Tax Regs., provides that “The
term ‘damages received (whether by suit or agreement)’ [in
section 104(a)(2)] means an amount received (other than worker’s
compensation) through prosecution of a legal suit or action based
upon tort or tort type rights, or through a settlement agreement
entered into in lieu of such prosecution.”
Despite the fact that petitioner sued to obtain Social
Security disability benefits, these benefits do not constitute
“damages” from a tortious injury. Rather, these benefits are
amounts received through disability insurance.4 See Andrews v.
Commissioner, T.C. Memo. 1992-668.
Taking into account petitioners’ 2000 filing status, their
modified adjusted gross income, and the Social Security
disability benefits petitioner received that year, 85 percent of
4 To the extent that petitioners did receive erroneous
advice on this point from one of respondent’s employees, the
event is of no significance here. See Zimmerman v. Commissioner,
71 T.C. 367, 371 (1978), affd. without published opinion 614 F.2d
1294 (2d Cir. 1979); Green v. Commissioner, 59 T.C. 456, 458
(1972).
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