Barbara Bond - Page 4

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          agreement stated that the parties entered into it solely to avoid           
          the burden and expense of litigation.                                       
               Ivy Tech paid $25,000 to petitioner in 2002 pursuant to the            
          settlement agreement.  Petitioner paid $8,332 of that amount as             
          attorney’s fees she had incurred in obtaining the recovery.                 
          Respondent received a Form 1099-MISC, Miscellaneous Income, from            
          Ivy Tech showing that it had paid $25,000 to petitioner in 2002.            
          Petitioner received a Form W-2, Wage and Tax Statement, for 2002,           
          but did not receive a Form 1099.  She did not report the $25,000            
          payment as income on her 2002 Federal income tax return.                    
          A.   Contentions of the Parties and Background                              
               Petitioner contends that $25,000 that she received from Ivy            
          Tech in 2002 in settlement of a lawsuit is excluded from income             
          because (1) section 104(a)(2) so provides, and (2) Ivy Tech                 
          breached the settlement agreement.2                                         
               Gross income generally does not include damages received               
          (whether by suit or agreement) on account of personal physical              
          injuries or physical sickness.  Sec. 104(a)(2).  For petitioner             
          to exclude the $25,000 payment under section 104(a)(2), she must            
          show that the damages were received on account of personal                  

               2  Respondent’s determination is presumed correct and                  
          petitioner bears the burden of proof on all issues in this case.            
          See Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).           
          Petitioner does not contend that respondent bears the burden of             
          proof under sec. 7491(a).                                                   

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