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Prepare an essay answering this question and explaining to Mr. and Mrs. Baker why they do or do not have to pay income tax on the settlement money.

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It was a dark and stormy night and a Camp Fun in the Woods van was traveling westbound on US Route 2 near Deer River, Minnesota. The van was returning a busload of teenagers from a summer camping trip through the northern Minnesota woods. Suddenly, the driver loses control of the van and the van flips over along the side of the road and many of the passengers are seriously hurt.
Paramedics are rushed to the scene. However, unfortunately, they are too late to help 16 year old Sean Baker, as he is pronounced dead on arrival at the local hospital.

After a brief period of mourning, Mr. and Mrs. Baker file a wrongful death lawsuit against Camp Fun in the Woods for loss of the companionship and services of their son, Sean. The camp, which is insured for liability up to $300,000 per incident, agrees to settle the case for $200,000. The settlement is approved by the court and $200,000 is paid to Mr. and Mrs. Baker as a result of the settlement.

When preparing their income tax return for that year, Mr. and Mrs. Baker ask you whether they need to report and pay income tax on the $200,000 settlement. Please prepare an essay answering this question and explaining to Mr. and Mrs. Baker why they do or do not have to pay income tax on the settlement money.

Please make sure to include any applicable research in your essay. Your research may include any and all relevant federal income tax materials, including statutes from the Internal Revenue Code, tax court cases, federal court cases, revenue rulings, private letter rulings, etc.

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