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Volume 7 - Opinions of Counsel SBEA No. 84

Opinions of Counsel index

Aged exemption (income requirement) (insurance proceeds - personal injuries) - Real Property Tax Law, § 467; 26 U.S.C. § 104:

Proceeds received in an out of court insurance settlement on account of personal injuries, by an applicant for the aged exemption, are not income for purposes of section 467 of the Real Property Tax Law.

We are asked whether the amount of an out of court insurance settlement received by an applicant for the aged exemption is to be included in the applicant’s “income”, as that term is defined in section 467 of the Real Property Tax Law. It is assumed that the settlement was compensation for personal injuries received by the applicant.

Paragraph (a) of subdivision 3 of section 467 provides, in part, that:

[Such] income shall include social security and retirement benefits, interest, dividends, total gain from the sale or exchange of a capital asset which may be offset by a loss from the sale or exchange of a capital asset in the same income tax year, salary or earnings, and net income from self-employment, but shall not include a return of capital, gifts or inheritances.

In construing this provision, the Court of Appeals stated that since the Legislature had not expressed any intent of incorporating the Federal or State income tax rules into section 467, the term “income” in the statute was subject to judicial construction, and that that construction would be an accommodation between the common understanding of the term and the legislative purpose behind the enactment of section 467. In construing “income,” the Court did look to the Internal Revenue Code for guidance (see, Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)).

Similarly, here, the Code is helpful. Pursuant to the Internal Revenue Code (26 U.S.C. § 104(a)(2)), the amount of damages received, whether by suit or agreement, on account of personal injuries or sickness is generally not included in gross income for purposes of Federal income taxation. In addition, income has been defined as “the return in money from one’s business, labor or capital invested; gains, profits or private revenues” (Black’s Law Dictionary, 4th Ed., p.906). Insurance proceeds on account of personal injuries are clearly not a return from one’s “business, labor or capital invested”.

Accordingly, given the judicial construction of section 467 in Engle v. Talarico, supra, the common meaning of income, and the treatment of compensation for personal injuries in Federal income taxation, it is our opinion that the proceeds received in an out of court insurance settlement on account of personal injuries, by an applicant for the aged exemption, are not income for purposes of section 467 of the Real Property Tax Law.

April 28, 1981

Updated: