Question

Legal damages. Nekras was a famous scientist. Kleveta was a rival scientist who accused Nekras of fabricating his research results. While Nekras lost a great deal of sleep due to the emotional distress, he did not suffer any physical symptoms or require any psychiatric care. Nekras sued Kleveta for defamation of character. Nekras won the case and was awarded the following amounts as damages: $50,000 for defamation and $45,000 for emotional distress resulting from the defamation. How much gross income must Nekras recognize?

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Answer 1

Emotional distres arising out of personal physical injury are non-taxable.

Damage to reputation is a non-physical injury and only out of pocket expenses to treat emotional distress arising out of defamtion can be excluded from taxable income. Any other compensation is treated as punitive damages and are taxable

In the given case legal damages received on defamation and emtional distress due to accusation of fabricating research results were not expensed for any medical costs to treat any emtional distress and hence no out of pocket expenses are incurred . Thus, the total amout of 50000+45000=95000 is taxable