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following example to illustrate the kind of payments excludable
from gross income under section 105(c):
Assume that under the plan of an employer payments equal to
25 percent of annual compensation are made to employees for
loss of a leg. The $10,000 employee would therefore receive
a payment of $2,500 and the $4,000 employee would receive a
payment of $1,000. These amounts would be excludible from
gross income if, under the plan, they are payable regardless
of the period that the employee is absent from work.
There is nothing in the Fortis policy that computes payments
with reference to the nature of the injury. Indeed, regardless
of the injury, a person receiving benefits for total disability
under the Fortis policy gets a monthly payment equal to 60
percent of monthly earnings. Thus, payments under the Fortis
policy are not “computed with reference to the nature of the
injury”, as required by section 105(c)(2), but instead are
computed with reference to the recipient’s earnings.
Accordingly, the exception does not apply to petitioner,2 and the
payments are taxable to her under section 105(a).
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
2Because the payments are computed with reference to
earnings, we need not consider whether they are computed without
regard to the period of absence from work.
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Last modified: May 25, 2011