                    United States Court of Appeals,

                            Fifth Circuit.

                             No. 94-60198.

     Ray L. WESSON, Estate of Ray Wesson, Deceased, E. Hall,
Administrator, Plaintiff-Appellant,

                                  v.

             UNITED STATES of America, Defendant-Appellee.

                            March 30, 1995.

Appeal from the United States District Court for the Southern
District of Mississippi.

Before REYNALDO G. GARZA, DEMOSS and BENAVIDES, Circuit Judges.

     REYNALDO G. GARZA, Circuit Judge:

         The sole issue before this Court is whether punitive damages

awarded in a bad faith cause of action under Mississippi law is

excludable under 26 U.S.C. § 104(a)(2).1        We are not the first

circuit to address this issue.         The Ninth, Federal, and Fourth

Circuits have held that punitive damages do not fall within the

purview of § 104(a)(2).2     The Sixth Circuit, departing from this




     1
      In 1989 Congress amended section 104(a), providing:
"paragraph (2) shall not apply to any punitive damages in
connection with a case not involving physical sickness or
physical injury." The parties agree that under the amended
version of § 104(a)(2), the punitive damages in the case sub
judice would be taxable. However, the amendment only applies to
amounts received after July 10, 1989, in taxable years ending
after such date. A verdict was returned well before this date.
     2
      Hawkins v. United States, 30 F.3d 1077 (9th Cir.1994),
petition for cert. filed, 63 USLW 3487 (Dec. 9, 1994); Reese v.
United States, 24 F.3d 228 (Fed.Cir.1994); Commissioner of
Internal Revenue v. Miller, 914 F.2d 586 (4th Cir.1990).

                                   1
majority position, held that punitive damages are excludable.3           For

the reasons discussed below, we join our brethren of the Ninth,

Federal,   and   Fourth   Circuits   in    holding    that   noncompensatory

punitive damages are not excludable under § 104(a)(2).

                               Background

     Dr. Ray Lamar Wesson and another doctor owned and operated a

surgical clinic.    The clinic purchased a life insurance policy on

Dr. Wesson in the amount of $87,136.00.              The Policy provided a

feature called an "Automatic Premium Loan."            This feature guarded

against lapse of the Policy by borrowing against the value of the

Policy to satisfy any unpaid premium.                Mutual Life Insurance

Company of New York (MONY) did not set up the Policy with the

automatic premium loan feature because of a mistaken belief that

another provision in the Policy negated this feature.             MONY later

became aware that the automatic loan feature should be operative

notwithstanding any other provision, yet failed to activate it.

     A premium on the Wesson Policy was not paid.            Roughly one and

one-half months later Dr. Wesson died in a plane crash and MONY

refused to tender the face amount of the policy.             The children, as

beneficiaries under the Policy, brought suit against MONY in

Mississippi state court to recover the face value of the Policy and

punitive damages for bad faith.           The jury returned a verdict of

$87,136.00 in actual damages and 8 million in punitive damages.




     3
      Horton v. Commissioner of Internal Revenue, 33 F.3d 625
(6th Cir.1994).

                                     2
The punitive damage award was remitted to 1.5 million.4

     The decedent's estate received the proceeds of the punitive

damage award and included it on its 1988 federal income tax return.

In July 1990 the estate filed an amended return claiming a refund

in the amount of $300,465.00 under the theory that the punitive

damages were excludable under 26 U.S.C. § 104(a)(2).                      The IRS

rejected the refund claim in April 1992.                 In February 1993 the

estate filed this complaint in district court. Motions for summary

judgment were filed and the district court granted the government's

motion.    The district court issued a memorandum opinion, which

relied on the Fourth Circuit rationale of Commissioner of Internal

Revenue v. Miller for including punitive damages in taxable income.

This appeal ensued.

                                   Discussion

     We    review   a   district    court's       decision   to   grant   summary

judgment de novo.       Both the district court and the parties agree

that there are no genuine issues of material fact, therefore

summary judgment was appropriate.                 The sole issue is whether

punitive    damages     received    in       a   bad-faith   action   should   be

excludable from taxable gross income under 26 U.S.C. § 104(a)(2)

(1988).

     To resolve this issue, we first look to the language of the

statute.     Section 104, entitled "Compensation for injuries or

sickness", provides in relevant part that "gross income does not

     4
      Mutual Life Insurance Co. of New York v. Estate of Wesson,
517 So.2d 521 (Miss.1987), cert. denied, 486 U.S. 1043, 108 S.Ct.
2035, 100 L.Ed.2d 620 (1988).

                                         3
include ... the amount of any damages received ... on account of

personal injuries or sickness."5           Appellant contends that the

punitive damages awarded by the jury were damages received on

account   of   personal   injuries.       The   government   contends   that

punitive damages do not fall within the ambit of section 104(a)(2)

and are therefore taxable.       As the Ninth, Federal, and Fourth




     5
      § 104.    Compensation for injuries or sickness

          (a) In general.—Except in the case of amounts
     attributable to (and not in excess of) deductions allowed
     under 213 (relating to medical, etc., expenses) for any
     prior taxable year, gross income does not include—

          (1) amounts received under workmen's compensation acts
     as compensation for personal injuries or sickness;

          (2) the amount of any damages received (whether by suit
     or agreement and whether as lump sums or as periodic
     payments) on account of personal injuries or sickness;

          (3) amounts received through accident or health
     insurance for personal injuries or sickness (other than
     amounts received by an employee, to the extent such amounts
     (A) are attributable to contributions by the employer which
     were not includable in the gross income of the employee, or
     (B) are paid by the employer);

          (4) amounts received as a pension, annuity, or similar
     allowance for personal injuries or sickness resulting from
     active service in the armed forces of any country or in the
     Coast and Geodetic Survey or the Public Health Service, or
     as a disability annuity payable under the provisions of
     section 808 of the Foreign Service Act of 1980; and

          (5) amounts received by an individual as disability
     income attributable to injuries incurred as a direct result
     of a violent attack which the Secretary of State determines
     to be a terrorist attack and which occurred while such
     individual was an employee of the United States engaged in
     the performance of his official duties outside the United
     States. (emphasis added).

                                      4
Circuits have noted, section 104(a)(2) is ambiguous6, susceptible

of at least two conflicting interpretations.7   We agree.    Section

104(a)(2) could mean that all damages recovered in a personal

injury suit are excluded, or it could mean that only those damages

that purport to compensate the plaintiff for the personal injury

suffered are received on account of personal injury—"consensus on

this issue within the federal judiciary is nonexistent."8       The

ambiguity is not limited to the term "on account of."       Congress

also failed to explain the meaning of "personal injury."

     The Supreme Court shed some light on the latter.    In United

States v. Burke9 the Court defined the meaning of "personal injury"

as used in section 104(a)(2).    The plaintiff filed a Title VII

action in district court alleging that the defendant discriminated


     6
      See Hawkins, 30 F.3d at 1080;   Reese, 24 F.3d at 230;
Miller, 914 F.2d at 590.
     7
      In Reese, the appellant interpreted the language "on
account of" to describe "a causal relationship between damages
and injury according to which damages are received on account of
a personal injury whenever a showing of personal injury is a
legal prerequisite for the award of those damages." Reese, 24
F.3d at 230. Put simply, any damages received in a case
involving personal injuries are necessarily damages received on
account of personal injuries. On the other hand, the IRS urged a
tighter interpretation, "one which defines a causal relationship
according to which damages are received on account of personal
injuries only when the injury in and of itself justifies such
damages." Id. at 230-31. Noncompensatory punitive damages are
not excluded under § 104(a)(2) because they are received, not on
account of a personal injury, but on account of the defendant's
egregious conduct in an attempt to punish and deter. "Both
interpretations are plausible." Id. at 231.
     8
      Estate of Wesson v. United States, 843 F.Supp. 1119, 1121
(S.D.Miss.1994).
     9
      504 U.S. 229, 112 S.Ct. 1867, 119 L.Ed.2d 34 (1992).

                                5
unlawfully in the payment of salaries on the basis of sex.                   After

the district court denied cross-motions for summary judgment, the

parties settled.           The taxpayers paid taxes on the settlement

payments and subsequently sought a refund under § 104(a)(2) as

"damages received on account of personal injuries or sickness."

Recognizing that neither the text nor the legislative history of §

104(a)(2) offered an explanation of the meaning of personal injury,

the Court linked identification of a personal injury to traditional

tort principles relying on 26 C.F.R. § 1.104-1(c), which defines

"damages" as "an amount received ... through prosecution of a legal

suit    or   action      based   upon   tort   or   tort   type   rights."        In

determining whether an action is based upon a tort or upon tort

type rights, the Court examined the remedies available to the

plaintiff.      Under traditional tort law, a broad range of remedies

are available, such as "pain and suffering, emotional distress,

harm to reputation ... [and] punitive damages."10                 Relying on the

lack of remedies available to the plaintiff, the Court held that a

Title VII claim does not seek to redress a personal injury.

Unfortunately, the Burke Court did not address what type of damages

are excludable from gross income, as received "on account of" a

personal injury.

         Under Burke the threshold inquiry in determining whether a

damage      award   is   excludable     from   gross   income     pursuant   to    §

104(a)(2) is to determine if the underlying cause of action seeks


       10
      Burke, 504 U.S. at ----, 112 S.Ct. at 1873, 119 L.Ed.2d at
46 (internal citation omitted).

                                         6
to redress a personal injury.11 This inquiry requires consideration

of Mississippi law.12      The government contends that a cause of

action sounding in bad faith is not one redressing a personal

injury.     The Mississippi Supreme Court, in the very case that gave

rise to the damage award, characterized the cause of action as a

bad faith claim with no personal injuries or actual damages other

than the policy limits.13     Though this language is curious, we do

not agree with the Government's position on this issue.        After

reviewing Mississippi law, we conclude that a bad faith cause of

action is one sounding in tort, and accordingly, one redressing a

personal injury. The Wesson court stated that punitive damages are

not allowed absent such malicious, reckless, willful or gross

disregard for the rights of the insured as to constitute an

independent tort.14    This language is consistent with a Burke-type

personal injury.      This does not, however, end our inquiry.    As

noted above, establishing that the underlying cause of action

redresses a personal injury is a threshold inquiry.

          The second step is to determine whether the damages were

     11
          See Miller, 914 F.2d at 589.
     12
      See id. (stating that "the inquiry requires consideration
of the Maryland law that created Miller's entitlement to
relief").
     13
          Estate of Wesson, 517 So.2d at 533.
     14
      Id. at 528; see also Aetna Casualty & Surety Co. v. Day,
487 So.2d 830, 832 (Miss.1986); Weems v. American Security Ins.
Co., 486 So.2d 1222, 1226 (Miss.1986); Bankers Life & Casualty
Co. v. Crenshaw, 483 So.2d 254, 268-69 (Miss.1985), aff'd, 486
U.S. 71, 108 S.Ct. 1645, 100 L.Ed.2d 62 (1988); Reserve Life
Ins. Co. v. McGee, 444 So.2d 803, 808 (Miss.1984); Standard Life
Ins. Co. of Indiana v. Veal, 354 So.2d 239, 247 (Miss.1977).

                                   7
received on account of the personal injury.15               Because the language

"on account of" of § 104(a)(2) is ambiguous we must " "look not

only to the particular statutory language, but to the design of the

statute as a whole and to its object and policy.' "16                               "The

definition of gross income under the Internal Revenue Code sweeps

broadly."17     Section 61(a) defines gross income as "all income from

whatever       source     derived,"    subject      only    to       the   exclusions

specifically enumerated elsewhere in the Code.18 "The Supreme Court

has   long     held     that   this   definition    is     to   be    given   liberal

construction "in recognition of the intention of Congress to tax

all gains except those specifically exempted.' "19                     Accessions to

wealth are       generally     presumed   to   be   gross       income     unless   the

taxpayer can show that the accession falls within a specific



      15
      See Schmitz v. Commission of Internal Revenue, 34 F.3d
790, 792 (9th Cir.1994) (citing Hawkins as setting forth a
two-part test, requiring the taxpayer to show (1) that the
underlying cause of action was tort-like under Burke, and (2)
that the damages were received "on account of" the taxpayer's
personal injury), petition for cert. filed, 63 USLW 3462 (Nov.
23, 1994).
      16
      Reese, 24 F.3d at 231 (quoting Crandon v. United States,
494 U.S. 152, 158, 110 S.Ct. 997, 1001, 108 L.Ed.2d 132 (1990)).
      17
           Burke, 504 U.S. ----, 112 S.Ct. at 1870, 119 L.Ed.2d at
42.
      18
           26 U.S.C. § 61(a).
      19
      Taggi v. United States, 35 F.3d 93, 95 (2d Cir.1994)
(quoting Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430,
75 S.Ct. 473, 476, 99 L.Ed. 483 (1955)). See also Burke, 504
U.S. at ----, 112 S.Ct. at 1870, 119 L.Ed.2d at 42 (stating that
Congress intended to exert "the full measure of its taxing power"
by including within the definition of gross income any accession
to wealth).

                                          8
exclusion.20      Exclusions from income are construed narrowly.21

       The Supreme Court has recognized that the title or heading of

a statute or section can aid in resolving an ambiguity in the

text.22      Section 104 is found in Part III of Subchapter B of the

Code, entitled "Items Specifically Excluded from Gross Income."

Section 104 is titled "Compensation for injuries or sickness."              As

the   Reese     court   noted,   "[c]ompensatory    damages     are   commonly

understood to mean damages such as will compensate the injured

party for the injury sustained, and nothing more;               such as will

simply make good or replace the loss caused by the wrong or

injury."23       The    common   meaning   of   "compensatory    damages"   is

consistent with the underlying purpose of the section as recognized

by the Ninth Circuit.        " "Damages paid for personal injuries are

excluded from gross income because they make the taxpayer whole

from a previous loss of personal rights—because, in effect, they

restore a loss to capital.' "24       We agree with the Reese court that

      20
           Reese, 24 F.3d at 231.
      21
      United States v. Centennial Sav. Bank FSB, 499 U.S. 573,
583, 111 S.Ct. 1512, 1519, 113 L.Ed.2d 608 (1991).
      22
      Immigration and Naturalization Serv. v. National Ctr. for
Immigrants, 502 U.S. 183, 189-90, 112 S.Ct. 551, 556, 116 L.Ed.2d
546 (1992).
      23
      Reese, 24 F.3d at 231 (internal quotations omitted)
(citing Black's Law Dictionary 390 (6th ed. 1990)).
      24
      Hawkins, 30 F.3d at 1083 (emphasis added) (citing Starrels
v. Commissioner, 304 F.2d 574, 576 (9th Cir.1962)); see 1 B.
Blitker, Federal Taxation of Income, Estates and Gifts, ¶ 13.1.4
(1981) (recognizing that "[t]he rationale for [§ 104(a)(2) ] ...
is presumably that the recovery does not generate a gain or
profit but only makes the taxpayer whole by compensating for a
loss"); accord Commissioner v. Glenshaw Glass Co., 348 U.S. 426,

                                       9
section 104's enumerated exclusions, which encompass only the

replacement of losses resulting from injury or sickness, are also

consistent with this common meaning and further aid us in resolving

this ambiguity.       Section 104(a)(1) excludes from income amounts

received under workmen's compensation acts;          section 104(a)(3)

excludes amounts received through accident or health insurance;

section 104(a)(4) excludes amounts received as pension, annuity, or

a similar allowance;        and section 104(a)(5) excludes amounts

received as disability income.         When one looks at section 104 in

its entirety, it becomes apparent that the class of damages that

may be excluded are those that compensate an individual for some

loss.     Viewing section 104(a)(2) in its statutory context, against

the doctrine that all accessions to wealth are gross income unless

specifically excluded, and applying the principle that exclusions

should be construed narrowly, we join our brethren of the Ninth,

Federal, and Fourth Circuits in concluding that "Congress did not

intend      section   104(a)(2)   to     exclude   from   gross   income

noncompensatory damages such as punitive damages."25

          Now we must determine if the damages awarded to plaintiff

were "on account of" a personal injury, that is, awarded to

compensate a tort-like injury.         Again this requires reference to


432, 75 S.Ct. 473, 477-78, 99 L.Ed. 483 (1955) (stating in
another context, that "[p]unitive damages, on the other hand,
cannot be considered a restoration of capital for taxation
purposes").
     25
      Id. The legislative history of Section 104(a)(2) also
supports this conclusion. See id. at 232-33 (tracing §
104(a)(2)'s legislative history and concluding that punitive
damages are not excludable from gross income).

                                   10
Mississippi law. Unquestionably, the law of Mississippi is similar

to that of other states;           punitive damages are not awarded to

compensate a plaintiff for an injury.             "The purpose of punitive

damages,     as   often   stated    by     this   Court,   is   to     punish     a

tortfeasor."26    "They "are not awarded to compensate a party for an

injury, but are granted in the nature of punishment for the

wrongdoing of the defendant as an example so that others may be

deterred from the commission of similar offenses, thereby, in

theory, protecting the public.' "27           Mississippi's bad faith law is

in accord with its general law on punitive damages.                  In Standard

Life Ins. Co. of Indiana v. Veal28 an insured brought an action

against the insurer alleging breach of contract for the insurer's

failure to pay the face value of a life insurance policy.                       The

court affirmed an award of punitive damages, stating:

     [e]xemplary or punitive damages            are those, of course, which
     are in addition to the actual             or compensatory settlement.
     They are granted in the nature            of punishment for the wrong
     doing of the defendant and as an          example so that others may be

     26
      State Farm Mut. Auto. Ins. Co. v. Daughdrill, 474 So.2d
1048, 1052 (Miss.1985) (responding to a certified question by the
Fifth Circuit concerning the Uninsured Motorist Act).
     27
      Id. (quoting Mississippi Power Co. v. Jones, 369 So.2d
1381, 1387 (Miss.1979)); see also James W. Sessums Timber Co.,
Inc. v. McDaniel, 635 So.2d 875, 880 (Miss.1994) (stating that
"[a] primary purpose in imposing punitive damages is to punish
... and serve as a warning to such person and others not to
engage in similar [egregious] conduct in the future"); Snow Lake
Shores Property Owners Corp. v. Smith, 610 So.2d 357, 362
(Miss.1992) (stating "punitive damages are assessed as an example
and warning to others"); U.S. Fidelity & Guaranty Co. v.
Stringfellow, 254 Miss. 812, 182 So.2d 919, 922 (1966) (stating
"punitive damages ... are in addition to actual or compensatory
damages").
     28
          354 So.2d 239 (Miss.1977).

                                         11
     deterred from the commission of similar offenses thereby in
     theory protecting the public.   The basis in awarding such
     damages to the injured party is that of rewarding an
     individual for public service in bringing the wrongdoer to
     account.29

The punitive damage award in this case may be aptly characterized

as a windfall;     other courts have made similar characterizations.30

In this context we agree with the Ninth Circuit's observation that

punitive damages do not make the recovering party whole and that

such damages are a windfall and an accession to wealth.31          In

accordance with Mississippi law, we conclude that punitive damages

awarded for bad faith are not awarded to compensate the plaintiff,

and are therefore not awarded on account of personal injuries.


     29
      Id. at 247 (internal citation omitted). The Veal court is
not alone in holding that punitive damages in insurance bad faith
cases are awarded, not to compensate, but to deter and punish.
In Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1189
(Miss.1990), the court stated that "[t]he possibility of being
held liable for punitive damages acts primarily to punish and
deter." Punitive damages "also act[ ] to award plaintiff for
public service in bringing the wrongdoer to account ... providing
an incentive to litigate injustices that might otherwise go
unredressed." Id. at 1189-90. See also Bankers Life & Casualty
Co. v. Crenshaw, 483 So.2d 254, 278 (Miss.1985) ("Our law ...
authorize[s] a quantum of punitive damages to be that amount
reasonably necessary to punish defendant and to provide a
substantial deterrent to it and others similarly situated from
the commission of similar offenses...."), aff'd, 486 U.S. 71, 108
S.Ct. 1645, 100 L.Ed.2d 62 (1988); Reserve Life Ins. Co. v.
McGee, 444 So.2d 803, 808 & 812 (Miss.1983) (stating that
punitive damages are "assessed as an example and warning to
others ... in order to inflict punishment"); Consolidated
American Life Ins. Co. v. Toche, 410 So.2d 1303, 1304 (Miss.1982)
("We have attempted to make it clear that since punitive damages
are assessed as an example and warning to others, they should be
allowed only with caution and within narrow limits.").
     30
      See Estate of Wesson v. United States, 843 F.Supp. 1119,
1122 (S.D.Miss.1994); see, e.g. Miller, 914 F.2d at 589.
     31
          Hawkins, 30 F.3d at 1083-84.

                                   12
     Appellant contends that punitive damages serve a dual purpose

in Mississippi:      (1) to punish and deter the tortfeasor, and (2) to

reward or compensate the plaintiff for the service to the public in

bringing the action.      In Mutual Life Insurance Co. of New York v.

Estate of Wesson, the Mississippi Supreme Court stated, "[i]n

addition,     the   punitive   damage    award    amounts    to   a   measure   of

compensation to the plaintiff for service to the public in bringing

the action, which should act as a deterrent of similar acts of

wrongdoing to other members of the public."32               Appellant contends

that the district court erred in finding no element of recompense

in the punitive damage award.       Appellant's argument is unsupported

by the overwhelming case law of Mississippi.                  The Mississippi

Supreme Court's use of the term "compensation" in the Wesson case

while superficially seems to support Appellant's position, has not

changed the law of Mississippi.              In Veal, the same court stated

that the "basis in awarding ... [a punitive damage award] to the

injured party is that of rewarding an individual for public service

in bringing the wrongdoer to account";33             in Andrew Jackson, the

court stated that punitive damages "act[ ] to award plaintiff for

public service in bring the wrongdoer to account";34                  and in U.S.

Fidelity & Guaranty, the court stated that punitive damages "are in



     32
      517 So.2d 521, 532 (Miss.1987), cert. denied, 486 U.S.
1043, 108 S.Ct. 2035, 100 L.Ed.2d 620 (1988).
     33
      Veal, 354 So.2d at 247 (internal citations omitted)
(emphasis added).
     34
          Andrew Jackson, 566 So.2d at 1189-90 (emphasis added).

                                        13
additional to ... compensatory damages."35 Punitive damages are not

awarded     to   compensate     the   plaintiff      for   the    personal   injury

suffered,     they   act   to   reward    the   plaintiff        for   bringing    the

tortfeasor to justice.

      In 1989 Congress amended § 104(a)(2), adding the following

provision:       "paragraph (2) shall not apply to any punitive damages

in connection with a case not involving physical sickness or

physical injury."         Appellant asserts that Congress's decision to

amend the exclusion implies that punitive damages were not taxable

before this amendment, otherwise there would be no reason to narrow

the scope of the exclusion.           The Ninth Circuit recently rejected

this very argument.        As discussed in Hawkins, "Congress may amend

a   statute      simply    to   clarify       existing     law,    to    correct    a

misinterpretation, or to overrule wrongly decided cases."36                         In

fact, at the time Congress acted, the tax court in Miller had held

recently     that    punitive    damages      were   excludable.37         The    more

plausible interpretation of the amendment is that the Miller case

was wrongly decided and Congress acted to correct it.                   Moreover, an

amendment to a statute does not necessarily indicate that the

previous version was the opposite of the amended version.                    As the

Supreme Court recognized, "the views of a subsequent Congress form



     35
          U.S. Fidelity & Guaranty, 182 So.2d at 922.
     36
          Hawkins, 30 F.3d at 1082.
     37
      Miller v. Commissioner, 93 T.C. 330, 1989 WL 104238
(1989), rev'd, Commissioner v. Miller, 914 F.2d 586 (4th
Cir.1990).

                                         14
a hazardous basis for inferring the intent of an earlier one."38

Accordingly, we find Appellant's interpretation of the amendment

unpersuasive.

      In a post-brief submission Appellant directed our attention to

the recently decided Sixth Circuit case of Horton v. Commissioner

of   Internal     Revenue,39   which   held   that   punitive   damages   were

excludable from gross income under § 104(a)(2).             Horton departed

from the circuit majority and held that in order "to determine

whether an award is excludable under section 104(a)(2), we should

focus on the nature of the claim underlying the taxpayer's damage

award. This is the beginning and end of the inquiry."40            The Horton

court extended the reasoning of the Supreme Court decision of

Burke.      As discussed supra, the Burke Court focused on the nature

of the claim to determine if it redressed a personal injury under

§ 104(a)(2).        However, the taxpayer in Burke did not receive

punitive damages, nor did the Court address the excludability of

these damages.

      The Court mentioned punitive damages only because the Court
      felt that the availability of punitive damages indicates the
      nature of the underlying cause of action:     Since punitive
      damages are traditionally available only in personal
      injury-type actions, the availability of punitives suggest
      that the underlying cause of action is "tort-like" within the
      meaning of § 104(a).41

      38
      United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326,
332, 4 L.Ed.2d 334 (1960).
      39
           33 F.3d 625 (6th Cir.1994).
      40
      Id. at 631 (internal quotations omitted) (internal
citation omitted).
      41
           Hawkins, 30 F.3d at 1081.

                                       15
Noncompensatory punitive damages are an indicia of a tort-like

cause of action;      however, it does not follow that they are awarded

on account of a personal injury.42 Notwithstanding our disagreement

with    the   legal   reasoning   in   Horton,   we   feel   that   Horton   is

distinguishable.       Punitive damages in Kentucky serve, in part, a

compensatory function.

       There is a reason for paying the punitive damages awarded to
       the injured party.      It is because the injury has been
       increased by the manner [in which] it was inflicted ...
       [al]though punitive damages are awarded as a civil punishment
       upon the wrongdoer, rather than as an indemnity to the injured
       party .. it might with much propriety be said that they are
       allowed by way of remuneration for the aggravated wrong done.43

Therefore, in Horton the Sixth Circuit was faced with an issue not

before us—whether a damage award that serves both as a deterrent

and a compensatory purpose is excludable under § 104(a)(2).

       To exclude damages awarded in a suit or otherwise under §

104(a)(2), two requirements must be met.          The taxpayer must show:

first, that the underlying cause of action was tort-like under

Burke;      and second, that the damages were received on account of

the personal injury, that is, to compensate the injured party for

the personal injury.      Accordingly, we affirm the district court's

ruling, joining the Ninth, Federal, and Fourth Circuits in holding


       42
      Accord Miller, 914 F.2d at 590 (stating that "the fact
that personal injury is a prerequisite to punitive damages does
not lead to the conclusion that the punitive damages were on
account of the plaintiff's injuries because, even if the other
elements of the tort are present, personal injury alone does not
sustain a punitive damage award").
       43
      Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382,
390 (Ky.1985) (internal citation omitted) (internal quotation
omitted).

                                       16
that § 104(a)(2) does not exclude noncompensatory punitive damages

from gross income.

     AFFIRMED.




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