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for “personal physical injuries” or “physical sickness”. In the
latter regard, we find from the record that the settlement
agreement memorialized Alameda’s understanding that petitioner
had filed the lawsuit against Alameda seeking “wages, penalties,
other damages, and attorneys’ fees”, that Alameda would issue
petitioner a Form 1099 to reflect its payment to her of the
$25,000 as a payment of income, and that Alameda required
petitioner to give to it a completed Form W-9 as a condition
precedent to Alameda’s paying the $25,000 to petitioner. We also
find with respect to the $25,000 payment that Alameda actually
issued to petitioner a 2003 Form 1099-MISC reporting that it had
paid her the $25,000 as nonemployee compensation.
We hold that the $25,000 was not paid to petitioner for
personal physical injuries or physical sickness within the
meaning of section 104(a)(2). While petitioners emphasize the
fact that petitioner claimed damages for emotional distress, and
we believe that part of the $25,000 may have been paid to satisfy
and extinguish that claim, our conclusion does not change.
Damages for emotional distress no longer qualify for exclusion
under section 104(a)(2), except to the extent that they do not
exceed the amount paid for medical care related to the emotional
distress. Sec. 104(a)(2) and flush language; Kidd v.
Commissioner, T.C. Memo. 2004-135; see H. Conf. Rept. 104-737, at
301 n.56 (1996), 1996-3 C.B. 741, 1041 n.56 (emotional distress,
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