Charles E. and Noel K. Bradley - Page 32

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               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.                                                           








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