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sought to collect petitioner’s $325,000 obligation and petitioner
asserted counterclaims for breach of contract, breach of the
covenant of good faith and fair employment, fraud, negligent
misrepresentation in petitioner’s hiring, and punitive damages.
During 1990, petitioner and Prudential agreed to a mutual
release of all claims between them. According to the terms of
the release, in exchange for petitioner’s release of all claims,
Prudential in turn released petitioner from all claims,
“including without limitation as to any and all promissory notes
by or [indebtedness] of Corrigan to Prudential-Bache.”
Correspondingly, petitioner released Prudential from all of the
asserted counterclaims.
Petitioner contends that the settlement is to be excluded
from income under section 104(a)(2) because it was for a tortlike
personal injury and/or that it was to settle a claim for punitive
damages. Respondent counters that petitioner has not shown that
the settlement was for tortlike injuries, and, even if the
settlement were for punitive damages, it would not be excludable
under section 104(a)(2).
Section 61(a) provides that “all income from whatever source
derived” is gross income unless otherwise excluded by statute.
The definition of gross income includes income from the discharge
of indebtedness. Sec. 61(a)(12); sec. 1.61-12(a), Income Tax
Regs. Accordingly, receipt of funds by a taxpayer is presumed to
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