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Section 61(a) defines gross income as “all income from
whatever source derived, including * * * (11) Pensions”, unless
otherwise provided. Section 105(a) provides that amounts
received by an employee through accident or health insurance for
personal injuries or sickness shall be included in gross income
to the extent that such amounts are (1) attributable to employer
contributions that were not includable in the employee’s gross
income, or (2) were paid by the employer. Section 105(c)
provides an exception to the general rule in section 105(a):
Gross income does not include amounts referred to in
subsection (a) to the extent such amounts --
(1) constitute payment for the permanent loss or
loss of use of a member or function of the body, or the
permanent disfigurement, of the taxpayer, his spouse,
or a dependent (as defined in section 152), and
(2) are computed with reference to the nature of
the injury without regard to the period the employee is
absent from work.
In order to qualify for the section 105(c) exception, the
payments to Mr. Thomas must satisfy both of these requirements.
The Court finds that the payments to Mr. Thomas fail section
105(c)(2); therefore, the Court need not, and does not, decide
whether the payments to Mr. Thomas satisfy section 105(c)(1).
Section 105(c)(2) itself has two requirements that must be
satisfied: (1) The payments to the taxpayer must be computed
with reference to the nature of the injury; and (2) the payments
must be computed without regard to the period the taxpayer is
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Last modified: November 10, 2007