Carl J. Fabry v. Commissioner of Internal Revenue

HILL, Circuit Judge:

This tax case presents a single issue: are damages to business reputation received in the amount of $500,000 by taxpayers in 19921 in settlement of their tort action for strict liability and negligence against the manufacturer of an allegedly defective product properly excludable from gross income under Internal Revenue Code (IRC) § 104(a)(2) as “damages received ... on account of personal injuries”? Under a de novo review, based upon the following, the answer to this question is yes. The decision of the tax court is reversed.

I. FACTUAL BACKGROUND

The relevant facts are…