Paul E. Ballmer - Page 6
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* * * For purposes of paragraph (2), emotional distress
shall not be treated as a physical injury or physical
sickness. * * *
“Damages received” means amounts received “through prosecution of
a legal suit or action based upon tort or tort type rights, or
through a settlement agreement entered into in lieu of such
prosecution.” Sec. 1.104-1(c), Income Tax Regs.
The parties stipulated that petitioner received the
$337,122.53 in question in 2001 and agree that no part of the
judgment would be excluded from income pursuant to section
104(a)(2). Petitioner, however, argues that the award of damages
to compensate for emotional distress is not gross income within
the meaning of section 61(a) regardless of the exclusions
contained in section 104. Petitioner, citing certain rulings
issued after the 16th Amendment was ratified, 31 Op. Atty. Gen.
304, 308 (1918) and T.D. 2747, 20 Treas. Dec. Int. Rev. 457
(1918), as well as a House report accompanying a bill that became
the Revenue Act of 1918, H. Rept. 767, 65th Cong., 2d Sess.
(1918), 1939-1 C.B. (Part 2) 86, argues that his recovery from
the FTB represents compensation for damage to human capital and
thus is not income.
2Sec. 104 was so amended by the Small Business Job
Protection Act of 1996, Pub. L. 104-188, sec. 1605, 110 Stat.
1838, to provide, effective for amounts received after Aug. 20,
1996, that the personal injury or sickness for which the damages
are received must be physical.
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Last modified: November 10, 2007