Reginald James Smith - Page 5
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Pursuant to section 7491(a), the burden of proof as to factual
matters shifts to respondent under certain circumstances.
Because the facts are not in dispute, we decide this case without
regard to the burden of proof.
I. Taxability of Payment Petitioner Received
A taxpayer’s gross income includes all income from whatever
source derived unless excluded by a specific provision of the
Internal Revenue Code. Sec. 61(a). Gross income does not
include “the amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether as lump sums
or as periodic payments) on account of personal physical injuries
or physical sickness”. Sec. 104(a)(2). To qualify for this
exclusion, the taxpayer must demonstrate: (1) The underlying
cause of action giving rise to the recovery is based upon tort or
tort type rights; and (2) the damages were received on account of
personal physical injuries or physical sickness. Commissioner v.
Schleier, 515 U.S. 323, 337 (1995); Allum v. Commissioner, T.C.
Memo. 2005-177, affd. 99 AFTR 2d 2007-2527, 2007-1 USTC par 50489
(9th Cir. 2007). The terms “physical injury” and “physical
sickness” do not include emotional distress, except to the extent
of damages not in excess of the amount paid for medical care
attributable to emotional distress. Sec. 104(a); see also Prasil
v. Commissioner, T.C. Memo. 2003-100.
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Last modified: November 10, 2007