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IV. Characterizing “personal injuries”
What constitutes “personal injuries” and whether damages
were received because of them is a question of fact. Threlkeld
v. Commissioner, supra at 1305. It is established that “personal
injuries” encompasses both physical and nonphysical injuries.30
United States v. Burke, supra at 237 n.6 (quoting Rickel v.
Commissioner, 900 F.2d 655, 658 (3d Cir. 1990), affg. in part and
revg. in part 92 T.C. 510 (1989)); Threlkeld v. Commissioner,
supra.
In Seay v. Commissioner, 58 T.C. 32, 37 (1972), this Court
held that damages received for mental strain, personal
embarrassment, and injury to personal reputation may be excluded
under section 104(a)(2). Specifically, personal injuries include
emotional distress, see Burke v. United States, supra at 235 n.6,
mental pain and suffering, see Bent v. Commissioner, 835 F.2d 67,
70 (3d Cir. 1987), affg. 87 T.C. 236 (1986), and injury to
30 Sec. 104(a)(2) was amended in 1996 by the Small Business
Job Protection Act of 1996, Pub. L. 104-188, sec. 1605(a), 110
Stat. 1838, effective generally for amounts received after Aug.
20, 1996. In relevant part, the amendment added the modifier
“physical” after “personal” and before “injuries”. This
amendment was made to clarify that amounts received on account of
personal injuries must be received for physical injuries and not
exclusively for emotional distress. However, amended sec.
104(a)(2) does allow an exclusion for the amount of damages in
excess of the amount paid for medical care attributable to
emotional distress. Because the $12 million at issue here was
received before Aug. 20, 1996, sec. 104(a)(2) as it existed
during 1995 is the law applicable to this case.
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