Who did Congress intend should benefit from the income tax-free payments?
Until 1999, Congress never said. When the two 1979 revenue rulings were codified in IRC § 104(a)(2) in 1982, the legislative history was silent on the reason for the tax break and who should benefit. Subsequent amendments to sections 104 and 130 also failed to provide a definitive answer. Some believed that the tax savings should be shared between the injury victim and the liability insurer. In 1999, Congress belatedly confirmed that its intent all along was to subsidize injury victims through the Internal Revenue Code by excluding from gross income the amount of damages (except punitive) in a case involving personal physical injury or physical sickness. Codified at 26 U.S.C. § 104(a)(2), Congress said the tax exclusion is an incentive for that individual or his or her guardian to elect guaranteed future periodic payments rather than a lump sum, which might be dissipated causing the injury victim ultimately to become a ward of society. The term subsidy was used in the following excerpt
