EXPLAIN, CITING IRS CODE, WHETHER THESE EVENTS ARE TAXABLE INCOME

1. While walking the dog in late December 2020, Sarah was hit by an out-of-control delivery truck. The mishap sent Sarah to the hospital for several days of observation and medical evaluation. Aside from severe bruises, she suffered no permanent injury. Once apprehended, the driver of the truck was ticketed for DUI. The owner of the truck, a local distributor for a national brewery, was quite concerned about the adverse publicity that would result if Sarah filed a lawsuit. Consequently, it paid all her medical expenses and offered Sarah a settlement if she would sign a release. Under the terms of the settlement, Sarah would receive $134,000, which was $126,000 for personal injury and $8,000 for loss of income because her injuries prevented her from painting for a period of weeks. On January 31, 2021, Sarah signed the release and was immediately paid $134,000.

2. In August 2021, Andy was rear-ended while stopped for a red light. Thankfully, Andy was uninjured. However, his car was damaged. The driver who caused the accident left the scene immediately, so Andy was forced to use his insurance to repair the damage to his car. As a result, Andy was subject to the $1,000 deductible provision in the policy, which he paid with respect to his car repairs in 2021. The Clarks claimed no deductions with respect to the accident on their 2021 income tax return. In late 2021, the insurance company located the driver at fault and recovered the amount paid for repairs. Consequently, in 2021. Andy received a check refunding the $1,000 he paid for his policys deductible.