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Court’s test in Commissioner v. Schleier, supra at 337, we need
not decide whether the underlying claim giving rise to the award,
i.e., OTS’s violation of the RIF regulations in effecting Mrs.
Campbell’s demotion, involved tort or tort type rights.6
In deciding whether damages were received “on account of
personal injuries or sickness”, the Supreme Court has construed
section 104(a)(2) to require that a damage award be more than
6 For the sake of completeness, we note that petitioners’
contention that, under the Supreme Court’s opinion in United
States v. Burke, 504 U.S. 229 (1992), a taxpayer need prove only
that the claim underlying a damage award was based on “tort or
tort type rights” for the award to be excludable under pre-1996
sec. 104(a)(2), was expressly rejected by the Supreme Court in
Commissioner v. Schleier, 515 U.S. 323, 336 (1995):
Second, and more importantly, the holding of Burke is
narrower than * * * [the taxpayer] suggests. In Burke,
following the framework established in the Internal
Revenue Service regulations, we noted that § 104(a)(2)
requires a determination whether the underlying action
is “based upon tort or tort type rights.” * * * In so
doing, however, we did not hold that the inquiry into
“tort or tort type rights” constituted the beginning
and end of the analysis. In particular, though Burke
relied on Title VII’s failure to qualify as an action
based upon tort type rights, we did not intend to
eliminate the basic requirement found in both the
statute and the regulation that only amounts received
“on account of personal injuries or sickness” come
within § 104(a)(2)’s exclusion. Thus, though
satisfaction of Burke’s “tort or tort type” inquiry is
a necessary condition for excludability under §
104(a)(2), it is not a sufficient condition. [Fn. ref.
omitted.]
Thus, contrary to petitioners’ argument, both elements of the
Schleier test must be satisfied in order for the sec. 104(a)(2)
exclusion to apply. Commissioner v. Schleier, supra at 337;
United States v. Burke, supra at 233.
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