Kovacs v. Commissioner
United States Tax Court
Ps were awarded damages of $ 995,000 in a Michigan wrongful death action and D appealed. After exhausting its appeals, D paid Ps $ 2,254,741.70, which was the sum of the damages, $ 6,134.53 in costs, and $ 1,253,607.17 in statutory interest.
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Ps were awarded damages of $ 995,000 in a Michigan wrongful death action and D appealed. After exhausting its appeals, D paid Ps $ 2,254,741.70, which was the sum of the damages, $ 6,134.53 in costs, and $ 1,253,607.17 in statutory interest. Held: Sec. 104(a)(2), I.R.C., excludes from gross income "damages received * * * on account of personal injuries". Statutorily imposed "interest" on damages is not included within the exclusionary terms of sec. 104(a)(2). Ps may not exclude the portion of the payment representing interest. Held further: Ps may deduct the portion of their attorney's fees…
1DissentBeghe, J.
Statutory prejudgment interest on damages received on account of personal injuries is properly excluded from gross income under section 104(a)(2). I am impelled to this conclusion by the preexisting character of prejudgment interest on tort and other unliquidated claims as damages, for Federal income tax purposes and at common law and under such superseding statutes as Mich. Comp. Laws (M.C.L.) section 600.6013 (1987). This conclusion is supported by recent Federal income tax developments, including the Supreme Court’s opinion in United States v. Burke, 504 U.S. _, 112 S. Ct. 1867 (1992), our…
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