154 F.

3d 1
82 A.F.T.R.2d 98-5840, 98-2 USTC P 50,672

Joseph S. ROZPAD and Kathleen M. Rozpad, Petitioners,

Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent,
Appellee.
Floriano DIBIASIO and Angela Dibiasio, Petitioners,
Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent,
Appellee.
Nos. 98-1254, 98-1269.

United States Court of Appeals,

First Circuit.
Heard July 28, 1998.
Decided Aug. 25, 1998.

Justin S. Holden, with whom Kimberly L. O'Brien and Justin S. Holden &
Associates, Inc., were on brief, for appellants.
Regina S. Moriarty, Attorney, Tax Division, U.S. Dep't of Justice, with
whom Loretta C. Argrett, Assistant Attorney General, and Bruce R.
Ellisen, Attorney, Tax Division, were on brief, for appellee.
Before SELYA, BOUDIN and LIPEZ, Circuit Judges.
SELYA, Circuit Judge.

These appeals require us to determine whether the appellants, Joseph and

Kathleen Rozpad and Floriano and Angela DiBiasio, must pay federal income
tax on portions of the monies they received after settling their respective
medical malpractice cases. Pointing to earlier jury verdicts and ensuing
judgments in the cases, the Commissioner of Internal Revenue (the

Commissioner) determined that a portion of each settlement corresponded to

prejudgment interest and assessed deficiencies based on the appellants' failure
to pay tax thereon. Despite the fact that the judgments to which the
Commissioner alluded had been abrogated by the subsequent settlements, the
Tax Court upheld the challenged deficiencies. See Rozpad v. Commissioner, 74
T.C.M. (CCH) 1264, 1997 WL 727821 (1997). So do we.
I. BACKGROUND
2

The parties submitted these cases on a stipulated record. We briefly recount the
essential facts.

3A. The Rozpads.

4

Kathleen Rozpad underwent surgery in 1989, with less than auspicious results.
She and her husband sued the surgeon in a Rhode Island state court. In 1992, a
jury awarded Mrs. Rozpad $2,000,000 in damages and also awarded $65,000 to
her husband. The trial court reduced Mrs. Rozpad's award to $650,000, and she
agreed to remit the excess. The court then entered a final (but reviewable)
judgment for $965,250, which included $250,250 in prejudgment interest
mandated by R.I. Gen. Laws 9-21-10 (1985).

During the appeal period, the Rozpads and the surgeon negotiated a global
settlement for $800,000 without any discussion of, or reference to, tax
consequences. They filed a stipulation with the court which recited that "[t]he
above-entitled action is hereby dismissed, no interest, no costs." After payment
of attorneys' fees and costs, the Rozpads netted $438,887.13. They reported no
portion of the settlement on their 1992 federal income tax return.

In 1994, the Commissioner issued a notice of deficiency, asserting that a

portion of the settlement constituted taxable prejudgment interest and should
have been so reported in 1992.

7B. The DiBiasios.

8

Floriano DiBiasio underwent surgery in 1982, but the operation did not go well.
He sued the surgeon for malpractice in a Rhode Island state court and a jury
awarded him $700,000 in damages. The trial court entered a final (but
reviewable) judgment for $1,272,810, which included $572,810 in prejudgment
interest mandated by R.I. Gen. Laws 9-21-10. During the appeal period, the
parties settled the case for $1,000,000 and filed a stipulation with the court
nearly identical to that filed in the Rozpad case. There was no discussion of, nor

reference to, tax consequences. After payment of attorneys' fees and costs, Mr.
DiBiasio netted $552,539.79. The DiBiasios did not report any part of the
settlement on their 1989 federal income tax return.
9

On February 23, 1994, the Commissioner issued a notice of deficiency,

asserting that a portion of the settlement constituted taxable prejudgment
interest which should have been (but was not) reported in the year 1989.

C. Proceedings Below.
10
11

Both the Rozpads and the DiBiasios filed timely petitions for redetermination
in the Tax Court. The Tax Court consolidated the two cases. It thereafter
rejected the petitioners' contentions and entered judgment for the
Commissioner. These appeals followed.

II. DISCUSSION
12

This case involves the interplay of sections 61 and 104(a)(2) of the Internal
Revenue Code (26 U.S.C.). The former section provides for the taxation of all
income "from whatever source derived ... including, but not limited to ... (4)
Interest." 26 U.S.C. 61. The latter section excludes from taxation "the amount
of any damages received (whether by suit or agreement and whether as lump
sums or as periodic payments) on account of personal injuries or sickness." 26
U.S.C. 104(a)(2). 1 As between the two provisos, section 61's broad mandate
constitutes the general rule and applies presumptively to all monetary accretions
unless the recipient can show that a specific exclusion pertains. See
Commissioner v. Schleier, 515 U.S. 323, 328, 115 S.Ct. 2159, 132 L.Ed.2d 294
(1995); Delaney v. Commissioner, 99 F.3d 20, 23 (1st Cir.1996). Thus, the
petitioners in this case must carry the devoir of persuasion to demonstrate that
section 104(a)(2) limits the tax liability that section 61 presumptively imposes.
Their task is daunting because all exclusions from taxation must be narrowly
construed. See Commissioner v. Jacobson, 336 U.S. 28, 49, 69 S.Ct. 358, 93
L.Ed. 477 (1949).

13

Our consideration of the petitioners' offerings proceeds in three segments. First,

we mull their claim that the Commissioner (and the Tax Court) erroneously
attributed a portion of their settlements to prejudgment interest. Second, we
consider their claim that, in all events, prejudgment interest on compensatory
awards in personal injury actions should not be taxable at all. Finally, we
address the DiBiasios' contention that the Commissioner acted out of time in
notifying them of the ostensible deficiency. Throughout, we scrutinize the Tax
Court's findings of fact for clear error and examine its conclusions of law de

novo. See State Police Ass'n of Mass. v. Commissioner, 125 F.3d 1, 5 (1st
Cir.1997).
A. Allocating Prejudgment Interest.
14
15

The petitioners' flagship claim posits that, inasmuch as the trial court judgments
in the malpractice actions were annulled by stipulation and never became
enforceable, the funds that they received can only be classified as lump-sum
personal injury settlements (and, therefore, wholly excludable from federal
income taxation under section 104(a)(2)).2 Put another way, the petitioners
contend that, in the absence of an enforceable judgment (i.e., one as to which
all avenues of direct review have been exhausted, either by unsuccessful
appeals or the running of the applicable appeal period) that includes interest,
the Commissioner unreasonably chose to "go behind" the settlement
agreements and improvise an artificial allocation.

16

The case law, though sparse, seems to draw a well-conceived line that refutes
the petitioners' challenge. When the interest component of a personal injury
settlement is difficult to delineate, there is every reason for courts (and the
Commissioner) to defer to section 104(a)(2) and treat the entirety as free from
tax. After all, a settlement of a claim for personal injuries almost inevitably will
take into account a multitude of factors (e.g., the nature of the injuries, the
measure of damages, attendant pain, the economic loss, the prognosis for the
future, the strength or weakness of the victim's case on liability, the immediacy
of the victim's need for funds, the depth of the tortfeasor's pocket, the presence
or absence of legal representation, the costs of trial, the extent of anticipated
delays, and the availability vel non of punitive damages and/or prejudgment
interest), and the parties typically will not assign independent monetary values
to each of these factors. To complicate matters further, some of these factors
(e.g., the costs of trial) would not themselves bear prejudgment interest. Thus,
the absence of an allocation renders it too speculative for a court, in hindsight,
to assign independent weight to each relevant factor and isolate a reliable figure
representing prejudgment interest.

17

On the other hand, when the interest component of a personal injury settlement
can be delineated with accuracy and ease--as when there has been a jury verdict
and an ensuing judgment that contains separate itemizations of damages and
interest--a subsequent settlement that does not purport to make a different
allocation is quite logically viewed as including a pro rata share of interest.3 See
Robinson v. Commissioner, 70 F.3d 34, 38 (5th Cir.1995), cert. denied, --- U.S.
----, 117 S.Ct. 83, 136 L.Ed.2d 40 (1996); Delaney, 99 F.3d at 24 n. 3. In this
hermeneutic, the parties have settled a claim for a liquidated amount--and it is

not unfair to assume, in the absence of a contrary allocation, see, e.g., McShane
v. Commissioner, 53 T.C.M. (CCH) 409, 1987 WL 40219 (1987), that interest
and damages compose the same proportion of the settlement as of the
antecedent judgment. Cf. Lyeth v. Hoey, 305 U.S. 188, 196, 59 S.Ct. 155, 83
L.Ed. 119 (1938) (explaining that amounts received in compromise of a claim
are treated for tax purposes in the same manner as would have been the case
had the taxpayer-plaintiff litigated and won the suit); Alexander v. IRS, 72 F.3d
938, 942 (1st Cir.1995) (similar). That assumption has particular force where,
as here, the appeal period had not run and the settlement amount exceeded the
amount of the damages recovered.4 This concatenation of circumstances leaves
no doubt but that the settlement includes some prejudgment interest.
18

Our decision two years ago in Delaney paves the way for the result that we
reach today. Delaney is particularly instructive with respect to the petitioners'
argument that the Commissioner improperly went behind their settlement
agreements. We determined there that the court had the right--indeed, the duty-to look beyond the "language subscribed to by the parties." Delaney, 99 F.3d at
23; accord Alexander 72 F.3d at 942; Robinson, 70 F.3d at 37-38.

19

Delaney is also instructive on another point. In that case, the taxpayers garnered
a jury verdict for $175,000 in a personal injury suit, to which the trial court
added $112,000 in statutorily mandated prejudgment interest. See Delaney, 99
F.3d at 22. During the pendency of the ensuing appeal, the parties settled the
case for $250,000, without addressing the tax consequences of the settlement in
any way. See id. When the Delaneys failed to report any portion of the
settlement on their federal income tax return for the appropriate year, the
Commissioner constructed a fraction, using as the numerator the amount of
prejudgment interest set by the trial court ($112,000) and as the denominator
the total amount of the judgment ($287,000). He then multiplied the total
settlement ($250,000) by this fraction and assessed a deficiency on the basis
that the resulting product ($97,561) represented the (taxable) interest
component of the settlement. See id.

20

The Tax Court sustained the Commissioner's determination, as did we. See id.
at 23. Specifically, we approved the Commissioner's use of a ratio based on the
judgment in apportioning the undifferentiated settlement proceeds as between
prejudgment interest and compensatory damages. See id. at 25-26; accord
Robinson, 70 F.3d at 38 (holding explicitly that the jury's verdict furnishes "the
best indication" of how to prorate an ensuing settlement). Since the
Commissioner used exactly the same methodology in this case, our precedent
forecloses the petitioners' complaint about that methodology.

21

Consistent with the authorities we have cited, we hold that when an amount has
been received in settlement of a claim after the claim has been reduced to
judgment, the judgment, albeit not final, nonetheless furnishes an adequate
guideline for allocation by the Commissioner to the extent that it is composed
of both compensatory damages and prejudgment interest. See Delaney, 99 F.3d
at 25-26; Robinson, 70 F.3d at 38.

B. The Taxability of Prejudgment Interest.

22
23

Having disposed of the petitioners' claim that no part of their settlements

constituted prejudgment interest, we turn to their theory that prejudgment
interest on a personal injury award is itself an award of damages received on
account of personal injury, and thus excludable from federal income taxation by
virtue of section 104(a)(2).

24

The petitioners accurately remark the tension between sections 61 and 104(a)
(2)--a tension that we noted but did not reconcile in Delaney, 99 F.3d at 26-27.
Other courts, however, have resolved this tension in a manner adverse to the
petitioners' position. See, e.g., Brabson v. United States, 73 F.3d 1040 (10th
Cir.1996) (Coffin, J., sitting by designation); Kovacs v. Commissioner, 100
T.C. 124, 1993 WL 46512 (1993), aff'd, 25 F.3d 1048, 1994 WL 253035 (6th
Cir.1994) (table). In both instances, final judgments in personal injury cases
had entered that specifically included prejudgment interest; the taxpayers
sought to avoid taxation of the prejudgment interest, arguing that it was
indistinguishable from the compensatory personal injury awards; and the courts
held that the portions of the recoveries allocated to interest were taxable. See
Brabson, 73 F.3d at 1046-47; Kovacs, 100 T.C. at 133.

25

The petitioners suggest that Kovacs, the principal Tax Court precedent on
which the Commissioner relies, is a hoax, built upon an improper analogy to
earlier Tax Court cases dealing with post-judgment, rather than prejudgment,
interest. See, e.g., Aames v. Commissioner, 94 T.C. 189, 1990 WL 17276
(1990); Church v. Commissioner, 80 T.C. 1104, 1983 WL 13864 (1983). This
claim is easily dispatched. It is true that many of the cases discussed in Kovacs
deal with post-judgment interest--but the petitioners fail to persuade us that this
distinction makes a meaningful difference. Interest, whether pre- or postjudgment, compensates for delay in payment, and is specifically included in the
litany of income items subject to taxation under section 61. Thus, essentially the
same rationale supports the includability of both species of interest for tax
purposes. The Tax Court merely applied existing precedent to a new version of
an old problem and reached a sensible result. See Kovacs, 100 T.C. at 129-30.

26

The petitioners also claim that the Kovacs court overlooked the legislative
history of section 104(a)(2). They assert that the 1982 amendment to that
section, which specifically approved exclusion from taxation of periodic
payments received on account of personal injuries, demonstrates that Congress
intended to exempt the interest portion of personal injury settlements from
taxation. 5 This strikes us as wishful thinking. There is nothing in the text of the
amendment that necessitates (or even suggests) such a conclusion. Indeed, it
seems likely that Congress's decision not to tax periodic payments reflects
recognition of the administrative difficulties of such a task--and nothing more.
See Brabson, 73 F.3d at 1045 n. 5; Kovacs, 100 T.C. at 132-33.

27

The petitioners next turn to Schleier, 515 U.S. 323, 115 S.Ct. 2159, 132
L.Ed.2d 294, and United States v. Burke, 504 U.S. 229, 112 S.Ct. 1867, 119
L.Ed.2d 34 (1992), in their effort to persuade us that Brabson and Kovacs are
wrongly decided. In both instances, the Court held that backpay awards in
workplace discrimination cases were not excludable under section 104(a)(2)
because they were not received on account of personal injuries. See Schleier,
515 U.S. at 336-37, 115 S.Ct. 2159; Burke, 504 U.S. at 242, 112 S.Ct. 1867.
Glossing over these holdings, the petitioners focus on a passage in Schleier, 515
U.S. at 329-30, 115 S.Ct. 2159, where the Court observed in dictum that lost
wages recovered in a suit for bodily injuries are excludable from taxation under
section 104(a)(2). In the petitioners' view, this passage implies that all amounts
received as part of a personal injury award are similarly sheltered.

28

Like the Brabson court, 73 F.3d at 1046, we think that this generous reading is
unwarranted. In both Schleier and Burke, the Court recognized that there are
two elements which a taxpayer must establish to qualify for an exclusion under
section 104(a)(2). First, damages must be incurred through a tort or a tort-like
incident causing personal injury. See Schleier, 515 U.S. at 336-37, 115 S.Ct.
2159; Burke, 504 U.S. at 237, 112 S.Ct. 1867. Second, those damages must be
received on account of that personal injury. See Schleier, 515 U.S. at 333-34,
115 S.Ct. 2159; Burke, 504 U.S. at 234, 112 S.Ct. 1867; see also Delaney, 99
F.3d at 27. It follows inexorably that the decisive question here cannot be the
extent to which prejudgment interest is "like" or "unlike" lost wages, but, rather,
whether prejudgment interest, under the circumstances of this case, can pass
the Court's two-part test.

29

Applying this test, we conclude that prejudgment interest is not "damages"

received "on account of" a personal injury, and is, therefore, taxable. In
reaching this conclusion, we place considerable emphasis on the nature of the
funds that the Commissioner found taxable. Section 104(a)(2) excludes from
taxation "the amount of any damages received ... on account of personal injury

or sickness." (emphasis supplied). Language is not infinitely elastic, and here,

the disputed prejudgment interest simply does not comprise "damages" within
the meaning of section 104(a)(2). We explain briefly.
30

Under the applicable Rhode Island statute, prejudgment interest is awarded in

all civil cases, not just in personal injury cases. See R.I. Gen. Laws 9-21-10.
This interest is separate and distinct from damages, and is awarded mainly to
compensate for delay in payment. See Foster v. Quigley, 94 R.I. 217, 179 A.2d
494, 495 (1962) (holding that prejudgment interest for damages to the person
"is not of the substance of the right of action but exclusively an incident
attached thereto by legislative fiat after such right has been adjudicated");
accord Balian v. Allstate Ins. Co., 610 A.2d 546, 549-50 (R.I.1992)
(reaffirming Foster and acknowledging that "the definition of damages may not
always include interest"); DiMeo v. Philbin, 502 A.2d 825, 826 (R.I.1986)
(explaining that the legislature's intent in providing for prejudgment interest
was to encourage settlement of tort cases without delay).

31

To be sure, federal law--not state law--supplies the rule of decision in

determining whether a given payment is subject to federal income tax. See
Helvering v. Stuart, 317 U.S. 154, 162, 63 S.Ct. 140, 87 L.Ed. 154 (1942);
Lyeth, 305 U.S. at 194, 59 S.Ct. 155. Nevertheless, a state's characterization of
such a payment can inform the federal determination, see Brabson, 73 F.3d at
1044, and Rhode Island's characterization of prejudgment interest comports
with the idea, venerated in federal jurisprudence, that the principal purpose of
prejudgment interest is to compensate for a delay in payment. See West
Virginia v. United States, 479 U.S. 305, 310 n. 2, 107 S.Ct. 702, 93 L.Ed.2d
639 (1987); Kovacs, 100 T.C. at 128. To that extent, then, federal and state law
converge.

32

We also conclude that prejudgment interest fails the second prong of the
Court's two-part test as it is not received "on account of" a personal injury. As
the Schleier Court explained, a recovery attributable to lost wages is not taxable
because "the accident causes a personal injury which in turn causes a loss of
wages." 515 U.S. at 330, 115 S.Ct. 2159. Conversely, the personal injury that a
victim experiences in, say, a medical malpractice case, does not cause a delay
in payment. Rather, the injury causes damages, thus creating the fund on which
interest for delay in payment is owed. See Kovacs, 100 T.C. at 128-29. So
viewed, the second half of the Court's test strongly suggests that, unlike lost
wages, prejudgment interest should not be excluded from federal income
taxation by operation of section 104(a)(2).6

33

Other indicia point persuasively in the same direction. These signposts are

neatly synthesized in Judge Coffin's thoughtful opinion in Brabson, 73 F.3d

1040. We rehearse three such indicia. First, prejudgment interest is not a
traditional remedy for personal injuries. See id. at 1046.. The Supreme Court
has accorded considerable significance to this factor, see, e.g., Schleier, 515
U.S. at 329, 115 S.Ct. 2159 (focusing on "typical recovery in a personal injury
case" in applying the two-part test), and so do we.
34

Second, and relatedly, the Brabson court attached great weight to the fact that
prejudgment interest was not available at common law in personal injury cases.
Indeed, such a boon was unheard-of in 1919 when Congress enacted the direct
lineal ancestor of section 104(a)(2), section 213(b)(6) of the Revenue Act of
1918, ch. 18, 40 Stat. 1057, 1066 (1919). Since the exclusion for personal
injury awards has been handed down almost verbatim from 1919 forward,
Congress could not conceivably have intended the exclusion to apply to
prejudgment interest. Cf. Monessen S.W. Ry. Co. v. Morgan, 486 U.S. 330,
338-39, 108 S.Ct. 1837, 100 L.Ed.2d 349 (1988) (disallowing recovery of
prejudgment interest in FELA cases because, when Congress enacted the
FELA in 1908, the common law did not allow prejudgment interest in personal
injury suits).

35

Third, the Brabson court read Schleier as requiring "a direct link between the
injury and the remedial relief" for the exclusion to apply, Brabson 73 F.3d at
1047, and found no such link between personal injuries and prejudgment
interest. "Time becomes the relevant factor, not the injury itself--the longer the
procedural delay, the higher the amount." Id. Thus, prejudgment interest is
inextricably intertwined with the very delay that severs the connection between
prejudgment interest and the underlying personal injury.

36

To say more would be supererogatory. Mindful of the panoply of factors

favoring taxability, and mindful, too, of the default rule that all exclusions from
income must be construed parsimoniously, see Schleier, 515 U.S. at 328, 115
S.Ct. 2159, we rule that prejudgment interest on compensatory damage awards
in personal injury actions falls within the broad mandate of section 61, and that
section 104(a)(2) provides no safe haven for taxpayers. Because the
Commissioner's (and the Tax Court's) determination that such prejudgment
interest is subject to federal income tax jibes with the weight of authority and
rests upon a sound construction of the Tax Code, we uphold it.

C. The Statute of Limitations.

37
38

The DiBiasios raise a final issue: whether the notice of deficiency issued to
them by the Commissioner was barred by the statute of limitations contained in

26 U.S.C. 6501 (which provides that, subject to certain exceptions, all federal
income tax deficiencies "shall be assessed within 3 years after the [taxpayer's]
return was filed").
39

The facts are these. The tax year in question is 1989. The DiBiasios filed their
return for that year on April 16, 1990. They reported no part of the settlement
proceeds as taxable income. The Commissioner issued the deficiency notice for
that tax year on February 23, 1994. Accordingly, if the general three-year
limitation period obtains, the notice came too late.

40

The Commissioner parries by invoking an exception to the general three-year

limitation period. To achieve this exception, the Commissioner must show that
a particular tax return improperly omits from gross income "an amount
properly includible therein which is in excess of 25 percent of the amount of
gross income stated in the return." If the Commissioner makes such a showing,
"the tax may be assessed ... at any time within 6 years after the return was
filed." Id.

41

We affirm the Tax Court's determination that the Commissioner has made the
requisite showing. The DiBiasios reported gross income of $123,382 on their
1989 return. The Commissioner found that the DiBiasios should have reported
an additional $450,036 in gross income attributable to prejudgment interest
garnered in connection with the malpractice settlement (subject, of course, to
appropriate deductions for attorneys' fees and costs). This amount obviously
exceeds twenty-five percent of the gross income actually reported. Since the
Commissioner correctly determined that this amount was subject to tax under
section 61 and that no exclusion applied, the Commissioner had six years
within which to serve a deficiency notice.

42

In arguing for a contrary result, the DiBiasios make two points. Our earlier
discussion defenestrates the first--that, by operation of section 104(a)(2), the
imputed interest component of the malpractice settlement was not taxable at all.
The second--that the $450,036 amount was "relatively arbitrary"--is
unpersuasive. The amount mirrored precisely the ratio of prejudgment interest
to compensatory damages in the original jury award. In the absence of a
contrary suggestion by the taxpayer, that ratio furnished the Commissioner with
an appropriate guideline for determining what portion of the settlement
comprised interest. See Delaney, 99 F.3d at 25.

III. CONCLUSION
43

We need go no further. The petitioners' remaining arguments do not merit

43

We need go no further. The petitioners' remaining arguments do not merit

discussion. For the reasons advanced above, we conclude that both the
Commissioner's determination and the Tax Court's affirmance of that
determination are amply supported.

44

Affirmed.

Throughout this opinion, we refer to the provisions of the Internal Revenue

Code in effect for the tax years in question. In 1996, Congress amended section
104(a)(2) to limit the exclusion, inter alia, to "personal physical injuries or
physical sickness." (Emphasis supplied.) The amendment does not apply to
damages collected before the date of its enactment, and has no bearing here

The boilerplate reference in the settlement stipulations to "no interest" is not

probative on this point and bears no further mention. See Delaney, 99 F.3d at
24

This is not to say that, should the settling parties choose to make an allocation,
the Commissioner necessarily will be bound by it. Generally speaking, the
Commissioner is not constrained by taxpayers' settlement allocations if those
allocations are unreasonable. Indeed, a reviewing court ought to consider
"much more than the mere language subscribed to by the parties, whether in the
settlement agreement proper, the stipulation of dismissal, or both." Delaney, 99
F.3d at 23

The Rozpads accepted $800,000 in full settlement of a judgment for $965,250,

which comprised $715,000 in damages and $250,250 in prejudgment interest.
Similarly, Mr. DiBiasio accepted $1,000,000 in full settlement of a judgment
for $1,272,810, which comprised $700,000 in damages and $572,810 in
prejudgment interest

The amendment, effective January 14, 1983, merely inserted the phrase "and
whether as lump sums or as periodic payments" into the statute. See Periodic
Payment Settlement Act of 1982, Pub.L. No. 97-473, 101(a), 96 Stat. 2605,
2605

Insofar as the petitioners contend that prejudgment interest in a personal injury

case passes the Court's two-part test because its principal purpose is to make
victims whole, cf. O'Gilvie v. United States, 519 U.S. 79, 117 S.Ct. 452, 456,
136 L.Ed.2d 454 (1996) (rejecting excludability of punitive damages because
they are not awarded to "make a victim whole"), their contention lacks force.
The O'Gilvie Court plainly indicated that section 104(a)(2) should not be

construed expansively, noted that the excludability of lost wages recovered in

personal injury actions is "something of an anomaly," and warned that the
phenomenon could not be assumed automatically to "justify the extension of
the anomaly or the creation of another." Id. 519 U.S. at ----, 117 S.Ct. at 456. It
is difficult, therefore, to place too much credence on the lifting of a marginally
related phrase from that case