Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages.Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages.What amount must Paul include in his gross income?

Question

Quizplus · Accepted Answer

Under the U.S. tax code, damages received for personal physical injuries or physical sickness are excluded from gross income. However, damages received for emotional distress and punitive damages do not qualify for this exclusion. Therefore, Paul must include the $5,500 for emotional distress and the $50,000 for punitive damages in his gross income, totaling $55,500. The $20,000 for damage to reputation is also taxable because it is not related to physical injury or sickness, making the total amount that must be included in gross income $75,500.

Acme Published a Story About Paul and as a Result