Cite as: 519 U. S. 79 (1996)
Opinion of the Court
Argrett, Deputy Solicitor General Wallace, Kenneth L. Greene, and Kenneth W. Rosenberg.
Justice Breyer delivered the opinion of the Court.
Internal Revenue Code § 104(a)(2), as it read in 1988, excluded from "gross income" the
"amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness." 26 U. S. C. § 104(a)(2) (emphasis added).
The issue before us is whether this provision applies to (and thereby makes nontaxable) punitive damages received by a plaintiff in a tort suit for personal injuries. We conclude that the punitive damages received here were not received "on account of " personal injuries; hence the provision does not apply, and the damages are taxable.
I
Petitioners in this litigation are the husband and two children of Betty O'Gilvie, who died in 1983 of toxic shock syndrome. Her husband, Kelly, brought a tort suit (on his own behalf and that of her estate) based on Kansas law against the maker of the product that caused Betty O'Gilvie's death. Eventually, he and the two children received the net proceeds of a jury award of $1,525,000 actual damages and $10 million punitive damages. Insofar as the proceeds represented punitive damages, petitioners paid income tax on the proceeds but immediately sought a refund.
The litigation before us concerns petitioners' legal entitlement to that refund. Procedurally speaking, the litigation represents the consolidation of two cases brought in the same Federal District Court: Kelly's suit against the Government for a refund, and the Government's suit against the children to recover the refund that the Government had made to the children earlier. 26 U. S. C. § 7405(b) (authoriz-
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