George G. Green - Page 20

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          110 Stat. 1838, section 104(a)(2) excluded from gross income                
          amounts received on account of personal injuries or sickness.               
          While the reference to personal injuries or sickness did not                
          include damages received pursuant to the settlement of purely               
          economic rights, it did include “nonphysical injuries to the                
          individual, such as those affecting emotions, reputation, or                
          character”.  United States v. Burke, 504 U.S. 229, 235 n.6                  
          (1992); see Robinson v. Commissioner, 102 T.C. 116, 126 (1994),             
          affd. in part and revd. in part on another issue 70 F.3d 34 (5th            
          Cir. 1995); see also Fono v. Commissioner, 79 T.C. 680, 692                 
          (1982), affd. without published opinion 749 F.2d 37 (9th Cir.               
          1984).  The parties have agreed that the version of section                 
          104(a)(2) in effect prior to the 1996 amendment applies to all of           
          the payments received by petitioner pursuant to the settlement              
          agreement.                                                                  
               In interpreting section 104(a)(2), the Supreme Court has               
          held that amounts are excludable from gross income only when                
          (1) the underlying cause of action giving rise to the recovery is           
          based on tort or tortlike rights and (2) the damages were                   
          received on account of personal injuries or sickness.                       
          Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995); sec.                
          1.104-1(c), Income Tax Regs.                                                
               If damages are received pursuant to a settlement agreement,            
          the nature of the claim that was the actual basis for settlement,           






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