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to, and did not, conclude Whittier’s actions caused or
exacerbated her ulcers and thereby inflicted upon her a physical
injury. We find that the jury did not conclude Whittier’s
actions caused her any physical injury, and it awarded damages
solely on the basis of Whittier’s discriminatory actions which
caused her lost wages and emotional distress, neither of which
provide a basis for exclusion from gross income.6 Thus, the jury
verdict underlying the settlement does not support any
apportionment of the settlement to “personal physical injury”
damages excludable from gross income under section 104(a)(2).
Petitioner invites the Court to look solely at the
settlement agreement to determine the characterization of the
$240,000. We decline to do so. In Robinson v. Commissioner,
supra, the taxpayers sued a state bank for failing to release a
lien on their property. After the jury returned a verdict in
their favor for approximately $60 million, including $6 million
for lost profits, $1.5 million for mental anguish, and $50
million in punitive damages, the parties settled. The final
judgment prepared by the parties allocated 95 percent of the
settlement to mental anguish and 5 percent to lost profits. We
6 Any damages received on account of emotional distress are
excludable under sec. 104(a)(2) only to the extent that
petitioner paid for medical care as to the emotional distress.
See flush language of sec. 104(a). The record shows that
petitioner’s insurance paid her medical bills. Her emotional
distress claims therefore do not give rise to excludable income
under sec. 104(a)(2).
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Last modified: May 25, 2011