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$1,257,500 does not coincide with any of the settlement documents
in the record as noted above, petitioners have not contested that
this is the amount paid for personal injuries. The transfers of
the automobiles are not stated in the Memorandum of Agreement to
be part of the personal injury settlement; rather, they are
separately listed in that document.
OPINION
The controversy concerns whether petitioners may exclude
from gross income under section 104(a)(2) a portion of the
settlement proceeds they received from MEC, a corporation of
which Mr. Wright was one of the founding shareholders and a long-
term employee.
I. General Rules
“Except as otherwise provided”, gross income for the purpose
of calculating Federal income tax includes “all income from
whatever source derived”. Sec. 61(a). This definition is
sweeping in scope, and exclusions from income are to be narrowly
construed. See Commissioner v. Schleier, 515 U.S. 323, 328
(1995). Further, “exemptions from taxation are not to be
implied; they must be unambiguously proved.”2 United States v.
Wells Fargo Bank, 485 U.S. 351, 354 (1988). The statute and the
regulations provide that compensation for services, including
2No question has been raised with respect to the burden of
proof or production under sec. 7491(a).
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