REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.

SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS. (a) In General.— Paragraph (2) of section 104(a) (relating to compensation for injuries or sickness) is amended to read as follows: “(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;”. (b) Emotional Distress as Such Treated as Not Physical Injury or Physical Sickness.— Section 104(a) is amended by striking the last sentence and inserting the following new sentence: “For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section 213(d)(1)) attributable to emotional distress.”. (c) Application of Prior Law for States in Which Only Punitive Damages May Be Awarded in Wrongful Death Actions.— Section 104 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Application of Prior Law in Certain Cases.— The phrase ‘(other than punitive damages)’ shall not apply to punitive damages awarded in a civil action— “(1) which is a wrongful death action, and “(2) with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification110 STAT. 1839 after such date) provides, or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before September 13, 1995, that only punitive damages may be awarded in such an action. This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2).”. (d) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendments made by this section shall apply to amounts received after the date of the enactment of this Act, in taxable years ending after such date. (2) Exception.— The amendments made by this section shall not apply to any amount received under a written binding agreement, court decree, or mediation award in effect on (or issued on or before) September 13, 1995.