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Read § 104. Injured persons need compensation. Consider the precise extent to which the subsections of § 104 exclude compensation for injury.
- Section 104(a)(2) seems to compel taxpayers to search for a physical injury, much as a tort claim involving only emotional distress involves a search for a physical manifestation. Review part IIB of CADC’s opinion in Murphy v. Internal Revenue Service, 493 F.3d 170 (CADC 2007), supra, chapter 2. The Government was correct in its reading of the “on account of” language in the statute. There must be a strong causal connection between the physical injury and the emotional distress – not the other way around – in order for it to be excluded from gross income by § 104(a)(2).
- What does § 104(a)(3) mean? What health or accident insurance payments does § 104(a)(3) reference?
- ”Health and accident” insurance includes wage continuation policies. This would be important for employees whose employers provide health insurance but not disability insurance.
- The exclusion applies to multiple payments from more than one self-purchased policy, even though the amount received exceeds the expense against which taxpayer procured the insurance.
- Read § 105. What rule emerges from §§ 105(a and b)?
- The following two problems are derived from and answered by Rev. Rul. 69-154. What is your intuition about how they should be solved? Feel free to examine the revenue ruling.
- C is covered by his employer’s health insurance policy. C’s employer pays the annual premium of $10,000. This amount is excluded from C’s gross income. In addition, C paid the entire
premium of $5000 for a personal health insurance policy.
- During the year, C had only one illness and incurred and paid total medical expenses, as defined in § 213 of the Code, of $2700. In the same year as a result of this illness, C was indemnified $2100 under his employer’s insurance policy and $1500 under his personal insurance policy.
- What is C’s gross income from the insurance companies’ reimbursements?
- D is covered by his employer’s health insurance policy. The annual premium is $10,000, of which the employer pays $4000 and $6000 is deducted from D’s wages. In addition, D paid the
entire premium of $5000 for a personal health insurance policy.
- During the year, D had only one illness and paid total medical expenses, as defined in § 213 of the Code, of $2700. In the same year as a result of this illness, D was indemnified $2100 under his employer’s insurance policy and $1500 under his personal insurance policy.
- What is D’s gross income from these reimbursements?
- C is covered by his employer’s health insurance policy. C’s employer pays the annual premium of $10,000. This amount is excluded from C’s gross income. In addition, C paid the entire
premium of $5000 for a personal health insurance policy.
- Read § 106(a).
Do: CALI Lesson, Basic Federal Income Taxation: Gross Income: Damages and Related Receipts
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