Punitive damages not excludable.
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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|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||Sep 1, 1992|
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