Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-45

1975-1 C.B. 47

Sec. 104

IRS Headnote

Estate's gross income; insurance settlement. An amount received by the estate of an employee killed while a passenger in his employer's airplane, under the employer's aircraft liability insurance policy that provided specified payments for injury or death while a passenger of the plane and upon execution of a full release from all claims for damages against the employer, is excludable from the gross income of the estate under section 104(a)(2) of the Code; Rev. Rul. 58-578 superseded.

Full Text

Rev. Rul. 75-45

Advice has been requested whether an amount received from an insurance company by the executor of the estate of a decedent, under the circumstances described below, is excludable from the gross income of the estate under the provisions of section 104(a)(2) of the Internal Revenue Code of 1954.

The decedent was killed while a passenger in an airplane owned by his corporate employer and the executor of his estate received a certain sum under the terms of an aircraft liability insurance policy held by his employer. The policy provided that the insurer would pay specified sums to persons injured while passengers in the corporation's airplane, or to the persons' beneficiaries or personal representative in the event of death, regardless of whether the insured was legally liable for such injury or death, provided the injured party or his representative executed a full release of all claims for damages against the insured. Such a release would include any claims brought under the wrongful death act of the decedent's State of residence, in which a series of court decisions had established that payments made under the wrongful death act were punitive in nature.

The question is whether the amount received by the executor under these circumstances is excludable from gross income as "damages received * * * on account of personal injuries or sickness" under the provisions of section 104(a)(2) of the Code, or whether it is includible in gross income as "punitive damages" under the provisions of section 1.61-14(a) of the Income Tax Regulations.

Section 61 of the Code provides, in part, that, except as otherwise provided in subtitle A, gross income means all income from whatever source derived.

Section 1.61-14(a) of the regulations states, in part, that punitive damages such as treble damages under the antitrust laws and exemplary damages for fraud are gross income.

Section 104(a)(2) of the Code excludes from gross income the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness.

Section 1.104-1(c) of the regulations 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.

Section 104 of the Code is a specific statutory exclusion from gross income within the "except as otherwise provided" clause of section 61(a). Section 104(a)(2) excludes from gross income "the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness" (emphasis added). Therefore, under section 104(a)(2) any damages, whether compensatory or punitive, received on account of personal injuries or sickness are excludable from gross income.

Accordingly, the amount received by the executor from the insurance company in the instant case is excludable from the gross income of the estate under section 104(a)(2) of the Code.

Rev. Rul. 58-578, 1958-2 C.B. 38, holds that where a contract between an insurance company and the owner of an airplane provides for the payment of specified amounts to a person injured in such plane or to such person's beneficiary, or personal representative in the event of death, upon the execution of a release of all claims for damages against the insured, such amounts are damages under section 104(a)(2) of the Code, and, as such, are excludable from the gross income of the recipient. Since that holding is encompassed by the present Revenue Ruling,  Rev. Rul. 58-578 is superseded.