Prepare a tax research memorandum in good form (Facts, Key Issue(s), Conclusion, and Reasoning and Authorities) to determine the proper tax treatment for each of the amounts received by Dan Driver in the following case. You should prepare your solution in Word. You should integrate the authorities you cite into your reasoning in the last part. Do NOT just list the authorities you used. Cite the authorities and explain how they apply to this case. Your authorities should include more than Code sections and Treasury Regulations. You should have at least one court case or Revenue Ruling in your analysis.
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Dan Driver was badly injured in an automobile accident in January 2014. The other driver Wendy Sheets was intoxicated at the time of the accident. Wendy was clearly at fault. Dan paid $150,000 for medical expenses during 2014. He has not filed his return for 2014, so he has not deducted these medical expenses. Dan sued Wendy in September 2014, won a judgment against her, and received following in cash from Wendy’s insurance company in November 2014 (she wisely had a $1,000,000 umbrella policy) as follows:
Reimbursement for medical expenses$150,000
Lost wages 50,000
Pain and suffering 635,000
Total amount received$950,000
What is the proper tax treatment of each of these amounts Dan Driver received?
Hint: Begin your research by reviewing Section 61(a) and Section 104. Conduct research using the RIA Checkpoint service.