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February 26, 2014


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Andrew Hayashi

This is a fascinating discussion. I don't think that I disagree with your conclusion under 104, but am curious: which reg are you referring to? 1.104-1 was amended in 2012 to eliminate the tort language, and -1(c)(2) explicitly rejects the tort requirement. Does this change your analysis?

Lisa Milot

hi Andrew - Thanks for checking in! I quoted the language from the prior version of Reg 1.104-1(c) in the post since the year under audit is 2009. However, I don't think the amendment changes the result - my understanding is that the change was due to judicial and legislative developments since the original Reg was adopted that made the limiting language unnecessary, but that it was not meant to change the meaning the prior language was meant to convey, and has not been interpreted in a way that would allow exclusion for payments like these.

Andrew Hayashi

Makes sense. Thanks, Lisa, and thanks for your contributions to this mini-symposium!

Lisa Milot

I've made a few revisions to the text of my post concerning the application of s. 104(a)(2) to Perez - many thanks to Andrew and my fellow Lounge-bloggers for helping me rethink it and frame it in a clearer and more useful light.

Ultimately while I would be surprised if the taxpayer prevails in her "damages" argument, I can understand why she might make it: her testimony makes clear the discomfort and at times pain associated with the procedure for her. Moreover, it seems reasonable to me that in the absence of actual legislative, judicial or IRS guidance that her expectations as to the tax treatment were set by the advice on the point she was able to find and the IRS's past behavior.

I am hopeful that guidance will emerge from this case that will help other taxpayers make informed decisions about whether (and at what price point) to transfer parts of their physical selves.

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