Court Opinion

ID: 4472250
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:20:59.397208+00
Date Added: 2024-06-11T08:49:06.873635
License: Public Domain

Beghe, J., concurring: I agree with the result in this case and join the majority opinion, but write separately to highlight an issue disclosed by stipulated facts. If respondent had raised this issue, the result might well have been different in part. In addition to determining that none of the punitive damages were excludable under section 104(a)(2), respondent could also have determined and argued, as a partial alternative, that the punitive damages attributable to nonpersonal injuries (destruction of petitioners’ personal residence and furniture and expenses of debris removal) should not be excluded under section 104(a)(2) because they were not received “on account of personal injuries or sickness”. The parties stipulated that petitioners’ lawsuit against Union resulted in a jury verdict that Mr. Horton had sustained compensatory damages of $62,265, of which $30,290 (49 percent) was attributable to personal injuries, and $31,975 (51 percent) was attributable to damage to real and tangible personal property. Similarly, the jury found that Mrs. Horton had sustained compensatory damages of $41,287, of which $11,262 (27 percent) was attributable to personal injuries, and $30,025 (73 percent) to property damage. In the absence of any finding by the jury that the punitive damages were attributable to anything more specific than Union’s generalized gross negligence, cf. Commissioner v. Miller, 914 F.2d 586, 589-590 (4th Cir. 1990), revg. and remanding 93 T.C. 330 (1989), the punitive damage award of $100,000 to Mr. Horton and $400,000 to Mrs. Horton could have been allocated between personal injuries and property damage in the same proportions that the jury allocated the compensatory damages. I agree with the majority that, under section 104(a)(2), as in effect for 1985,1 no part of the punitive damages attributable to personal injuries should be included in petitioners’ gross income. Inasmuch as respondent did not raise the alternative argument for an allocation of the punitive damages, the Court should not do so sua sponte. Assuming, however, that Kentucky law permits punitive damages with respect to nonpersonal injuries, and that the jury award of punitive damages took account of those injuries, we could have considered and given effect to an allocation if the issue had been properly presented. Allocating the punitive damages would not conflict with our decision in Miller v. Commissioner, 93 T.C. 330 (1989), revd. and remanded 914 F.2d 586 (4th Cir. 1990), or with the spirit of Congress’ most recent amendment to section 104(a). Neither our opinion in Miller nor the recent amendment states that punitive damages received on account of nonpersonal injuries are excludable under section 104(a)(2). See supra note 1. The 1989 amendment removes from the operation of section 104(a)(2) “any punitive damages [received] in connection with a case not involving physical injury or physical sickness.” It is clear that petitioners’ case involved physical injuries. However, the language of the 1989 amendment restricts, rather than expands, the scope of section 104(a)(2). Although petitioners’ case involved physical injuries, section 104(a)(2), as amended, does not exclude from gross income damages attributable to petitioners’ nonpersonal injuries; i.e., their property losses. Section 104(a)(2) excludes only damages received on account of personal injuries or sickness; it has never excluded tort damages for nonpersonal injuries to real and tangible personal property, and does not do so now. Damage to such property is not a form of personal injury. See Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418, 422 (Mo. Ct. App. 1965);2 cf. Riddle v. Commissioner, 27 B.T.A. 1339 (1933).3 I do not believe that any award or settlement received on account of damage to real and tangible personal property should be excluded from gross income under section 104(a)(2). The applicable regulation does not change this conclusion. Section 1.104-l(c), Income Tax Regs., provides that The term “damages received (whether by suit or agreement)” means an amount received (other than workmen’s compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution. This regulation only defines the term “damages received (whether by suit or agreement)” and does not equate “personal injury” with “tortious injury”. Rather, the regulation provides that the term “damages received (whether by suit or agreement)” is defined by reference to tort law and the remedies available thereunder. See United States v. Burke, 504 U.S. _, 112 S. Ct. 1867 (1992). While a cause of action or claim for harm to one’s interests in real and tangible personal property may be based upon a tort or tort type right, money damages received on account of such a claim would not be received “on account of personal injuries or sickness” and therefore would not be excluded from gross income by section 104(a)(2). (Emphasis added.) Hence, personal injury is not properly defined as any injury that is tortious, but as tortious injury to the person, of which bodily harm is the clearest example. Although all of petitioners’ injuries were tortious, not all of them were personal. There is also a lurking question whether petitioners’ compensatory damages should have been allocated between personal and nonpersonal injuries. While section 104(a)(2) does not exclude from gross income an award or settlement received on account of harm to real or tangible personal property, section 165(c)(3) provides a deduction for casualty losses, to the extent not compensated by insurance or otherwise, and section 1033 provides for nonrecognition of amounts received and reinvested as a result of involuntary conversion. However, the applicability of these provisions could not have been presented to us in this case because petitioners had apparently received their payments of compensatory damages in a prior taxable year.  As the majority note, sec. 104(a) was amended by the Omnibus Budget Reconciliation Act of 1989, Pub. L. 101-239, sec. 7461, 103 Stat. 2106, 2379, so as not to apply to punitive damages received in connection with a case not involving physical injury or sickness. This amendment applies to punitive damages received after July 10, 1989. Majority op. p. 94 note 2. For a discussion of the 1989 amendment, see Henning, “Recent Developments in the Tax Treatment of Personal Injury and Punitive Damage Recoveries”, 45 Tax Law. 783, 799-804 (1992) (apparently written before the Supreme Court’s decision in United States v. Burke, 504 U.S. _, 112 S. Ct. 1867 (1992)).    “[T]orts are divided into two general classes, namely, ‘property torts’ which involve injury or damage to property, whether realty or personalty, and ‘personal torts’ which involve injuries to the person, whether to the body, reputation, or feelings.” Travelers Indem. Co. v. Chumbley, 394 S.W.2d 418, 422 (Mo. Ct. App. 1965) (fn. refs, omitted).    Respondent determined that damages for loss of personal property in the sinking of the Lusitania were taxable, but conceded the issue when petitioner showed that the award did not exceed the basis of the property.