IRC §104 (a) (2) provides that "gross income does not include the amount of any damages (other than punitive damages) received (weather by suit or agreement and whether as lump sum or as periodic payments) on account of personal physical injuries or physical sickness."
The Supreme Court of the United States summarized the requirements of §104 (a) (2) as follows:
First, the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is "based upon tort or tort type rights"; and second, the taxpayer must show that the damages were received "on account of personal injuries or sickness." Amos v. Commissioner of Internal Revenue