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Punitive damages not excludable.

Punitive damages not excludable. O'Gilvie won punitive damages in a wrongful death suit based on his wife's death from toxic shock syndrome. He claimed the punitive damages were excludable as damages "on account of personal injury" under IRC section 104(a)(2).

Result: For the IRS. The punitive damages are not compensatory in nature and thus cannot be said to be "on account of" personal injury. Therefore, they are not excludable under section 104(a). A 1989 amendment to section 104(a) explicitly made taxable punitive damages for nonphysical injury cases. As argued by O'Gilvie, it seems Congress easily could have made all punitive damages taxable at the time of the amendment.

* O'Gilvie (DC Kansas, 1992).

Edited by Anne Wagenbrenner, JD, LLM, editor, AICPA client newsletters.
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Article Details
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Sep 1, 1992
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