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through a settlement agreement entered into in lieu of such
prosecution.” Sec. 1.104-1(c), Income Tax Regs. Thus, the
exclusion must derive from some sort of tort claim against the
payor. Rickel v. Commissioner, 900 F.2d 655, 658 (3d Cir. 1990),
affg. in part and revg. in part on other grounds 92 T.C. 510
(1989).
The ERS provisions of the Baltimore County Code provide for
a “general system of pensions and retirements for the benefit and
advantage of its officers, agents, servants, and employees” of
Baltimore County. Baltimore County Code sec. 23-1 (1988). Thus,
the ordinary disability retirement benefits provided under the
ERS are not payments derived from some sort of tort claim against
Baltimore County. See, e.g., Flaherty v. Commissioner, T.C.
Memo. 1987-61 (Internal Revenue Service employee’s disability
retirement annuity payments received under the Civil Service
Retirement System were not excludable under section 104(a)(2)
because the payments were intended to provide for the physical
and mental well-being of the employee and were not damages from
the settlement or prosecution of a legal suit). Accordingly,
section 104(a)(2) does not apply to exclude from gross income the
ordinary disability retirement benefits received by petitioners
in taxable year 2000.
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