Robert W. Wood (Robert W. Wood, P.C., San Francisco) has published Ulcers and the Physical Injury/Physical Sickness Exclusion, also available on the Tax Analysts web site as Doc 2005-13042, 2005 TNT 115-33.  Here is the Conclusion:

The Tax Court in Vincent seems to viciously attack the argument that the presence of a statutory fee-shifting provision should alter the treatment of attorney fees. The Tax Court does not even refer to the specific guidance on statutory fee-shifting provisions the Supreme Court noted at the end of the Banks decision. I have previously characterized that guidance at the end of the Banks opinion as a road map.

There, the Supreme Court stated that the plaintiff might not have gross income measured by attorney fees when there was a statutory fee-shifting provision and either: a court award of attorney fees, a contingent-fee agreement that provided that the lawyer would receive all fees either as statutory fees or in lieu of statutory fees, or a settlement agreement that similarly provided that all fees were being paid to the lawyer in lieu of statutory fees to which the lawyer would be entitled.

It does seem that Vincent did not follow that path in settling her case (of course, the Supreme Court had not yet then rendered Banks, so no one could follow the path until it was created). Still, it would have been nice for the Tax Court to pay attention to what the Supreme Court advised. It is troubling that they did not.

We can expect to see more cases like Vincent, in which causation and proof of causation are examined to determine the applicability of § 104. Given the Tax Court’s conclusion in Vincent that the jury was never asked if the defendant caused or exacerbated Vincent’s ulcer, maybe the § 104 holding is not so odd. But the fee issue is troubling. We can expect to see more cases in which statutory fee arguments are raised.