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need to reexamine their books and records after examining them
previously. Because information that may affect your tax
liability has been developed since we last examined your books
and records, please make them available to us for reexamination.”
The letter was signed by Bill Marx, the acting territory manager
for the Large and Mid-Size Business Division.
On August 28, 2002, respondent issued a notice of deficiency
that determined a $194,743 deficiency in petitioners’ income tax
for 1998.
Discussion
Exclusion Pursuant to Section 104(a)(2)
Respondent determined that none of the Merchants award was
excludable pursuant to section 104(a)(2). Petitioners challenge
respondent’s determination.
As a general rule, the Internal Revenue Code imposes a
Federal tax on the taxable income of every individual. Sec. 1.
Section 61(a) specifies that, “Except as otherwise provided”,
gross income for purposes of calculating such taxable income
means “all income from whatever source derived”. The Supreme
Court has long reiterated the sweeping scope of section 61.
Commissioner v. Schleier, 515 U.S. 323, 327 (1995); Commissioner
v. Glenshaw Glass Co., 348 U.S. 426, 429-431 (1955).
Section 104, in contrast, provides an exception with respect
to compensation for injuries or sickness. Such exclusions from
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