- 24 - made Bullock aware of his injuries, there is no evidence that any of the payments received under paragraph 5 and the first annuity contract were intended by the State to compensate petitioner for personal injuries or sickness. Petitioner has failed to establish the second prong of Schleier because he is unable to establish that any part of the first annuity was allocable to personal injury or sickness, and the record lacks any evidentiary basis for concluding that a specific portion of the first annuity was allocable to any personal injury or sickness. See Lindsey v. Commissioner, 422 F.3d 684 (8th Cir. 2005), affg. T.C. Memo. 2004-113. Therefore, after examining the facts and circumstances surrounding the claim and the settlement agreement, we conclude that the payments received under paragraph 5 and the first annuity contract are not excludable under section 104(a)(2) and are to be included in petitioner’s gross income in the years received. Paragraph 6 of the settlement agreement allocates the second annuity contract to “all other damages, including punitive [damages] and pre-judgment and post-judgment interest”. Petitioner contends that, notwithstanding this express allocation, none of the payments received under the second annuity were for punitive damages or interest. Punitive damages are included in gross income because they are an element of damages not designed to compensate victims;Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Next
Last modified: May 25, 2011