Research Problem 3. A taxpayer was diagnosed with multiple sclerosis when she was 27 years old. She was employed full-time for several more years after the condition was discovered.

However, her employer placed extreme pressure on her, causing her symptoms of multiple sclerosis to accelerate. Eventually, the employer terminated her employment. The taxpayer sued the employer and collected damages caused by the employer’s egregious behavior. The IRS contended that the damages she suffered were from emotional distress, rather than physical injury, and therefore the damages must be included in gross income. Do you think the taxpayer has a defensible basis for excluding the damages from gross income? Explain.