- 32 -
Neither the statute nor the legislative history of section
104(a)(2) offers any explanation of the term “personal injuries”.
United States v. Burke, supra at 234; Threlkeld v. Commissioner,
87 T.C. 1294, 1305 (1986), affd. 848 F.2d 81 (6th Cir. 1988).
The regulations under section 104(a)(2) have formally linked the
identification of “personal injury” to traditional tort
principles since 1960. United States v. Burke, supra at 234.
Section 1.104-1(c), Income Tax Regs., establishes the
requirements of section 104(a)(2) and provides:
(c) Damages received on account of personal
injuries or sickness.--Section 104(a)(2) excludes from
gross income the amount of any damages received
(whether by suit or agreement) on account of personal
injuries or sickness. The term “damages received
(whether by suit or agreement)” means an amount
received (other than workmen’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.
The plain language of section 104(a)(2) and the text of the
regulations establish two independent requirements that must be
fulfilled for any recovery to be excluded from gross income. The
taxpayer must demonstrate: (1) The underlying cause of action
giving rise to the recovery was “based upon tort or tort type
rights”, and (2) the settlement was entered into “on account of
personal injuries or sickness”. See United States v. Burke,
supra at 234-235.
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011