This Article proposes a conception of the “personal physical injury” exclusion that does not require observable bodily harm. The §104 exclusion has historically been interpreted by reference to tort principles. And tort law has long recognized the legitimacy of emotional distress arising from invasions of physical interests that do not cause bodily harm, even when it would not recognize emotional distress in other contexts. The “personal physical injury” exclusion of § 104(a)(2) should be interpreted consistently with tort principles such that emotional distress damages attributable to intentional invasions into a person’s physical autonomy, security, and liberty should be excluded from taxable income regardless of whether the tortfeasor memorializes the event with a bruise. The legislative history of the amendment indicates that Congress did not set out to change 80 years of tax law by taxing emotional distress damages attributable to these physical invasions.
Christoff, Joi T.
"Tax Free Damages: Trespassory Torts and Emotional Harms,"
Akron Law Review: Vol. 53:
1, Article 3.
Available at: https://ideaexchange.uakron.edu/akronlawreview/vol53/iss1/3