LIMITATION ON SECTION KM EXCLUSION.

SEC. 7641. LIMITATION ON SECTION KM EXCLUSION. (a) General Rule.—Section 104(a) (relating to compensation for injuries or sickness) is amended by adding at the end thereof the following new sentence: “Paragraph (2) shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.” (b) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to amounts received after July 10, 1989, in taxable years ending after such date. (2) Exception.— The amendment made by subsection (a) shall not apply to any amount received— (A) under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989, or (B) pursuant to any suit filed on or before July 10, 1989.