- 7 - instance, the insurance benefits do not constitute gross income. That argument is inappropriate in the present case. The general rule is that the taxability of recovery payments depends upon the nature of the claim. If the recovery represents damages for lost profits, the payment is considered income; however, if the recovery represents a replacement of capital destroyed or damaged, the recovery does not constitute income to the extent the recovery does not exceed the basis of the damaged or destroyed property. In the latter case, the recovery is a restoration or return of capital. State Fish Corp. v. Commissioner, 48 T.C. 465, 473 (1967). In the present case, petitioner had no basis in his credit card liability. Therefore, the payments by the insurance companies were not a recovery or restoration of capital. These payments were income.7 Conclusion We have considered all of the other arguments made by the parties, and, to the extent that we have not specifically addressed them, we conclude they are without merit. 7We note that the amounts reported as income could be reduced or offset by the premiums paid by petitioner for the insurance coverage for the benefits payable arising during the period of petitioner’s unemployment. However, petitioner has failed to establish the total amount of the premiums paid for the year at issue or the portion of such premiums allocable to the unemployment risk (as distinguished from the premiums attributable to death or disability); therefore no such offset will be allowed.Page: Previous 1 2 3 4 5 6 7 8 9 Next
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