Recent developments in the taxation of punitive damage awards.

Punitive damages, designed to punish wrongdoers, are taxable if awarded in personal injury cases not involving physical injuries, under the 1989 amendment to IRC s. 104. Punitive and compensatory damages received on account of personal injuries are generally tax-free. However, the characterization of awards as compensatory or punitive, as well as the personal injury basis for the award, are issues that can be raised in challenging the excludibility of particular awards.