Mavis Is Injured in an Automobile Accident and Sues the Driver

question 10

Multiple Choice

Mavis is injured in an automobile accident and sues the driver of the truck that struck her car. The court finds the driver liable and awards Mavis $10,000 to pay her medical expenses, $20,000 for her pain and suffering, and $5,000 for loss of income while she was unable to work. The court also finds the truck driver negligent and awards Mavis $50,000 in punitive damages. Which of the following statements concerning the receipt of these payments is/are correct?
I.Mavis is not taxed on any of the payments because they relate to a personal physical injury.
II.Mavis must include the loss of income payment in her gross income.
III.The punitive damage payment is taxable.
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• A)Only statement I is correct.
• B)Only statement III is correct.
• C)Statements II and III are correct.
• D)Only statement II is correct.

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