The Tax Court rules that punitive damages still are not excluded from tax.
Petitioner argued that the punitive damages received should be subject to the exclusion from income for amounts received for personal injures or sickness from health of accident insurance (Section 104(a)(3). Petitioner argued that “but for” the injury, which was covered by accident insurance and from which the proceeds were paid, the punitive damages would not have been paid. Petitioners offered the alternative argument that the damages were not punitive, but rather were “bad faith damages.” The Tax Court rejected both arguments.
Read the opinion:
Greenberg v. Commissioner TC Memo. 2011-18