We all love taxes.

Taxes make the world a better place.

Who would have thought that taxes could provide a bright spot for the gymnasts who suffered sexual assaults at the hands of Michigan State University physician Larry Nassar?

Internal Revenue Code Section 104(a)(2) exempts from taxation “the amount of any damages . . . received . . . on account or personal physical injuries.” Originally, Section 104(a)(2) broadly exempted damages from “personal injuries.”

Then Congress limited the exemption to personal physical injuries, excluding purely emotional injuries from the exemption. Nassar’s victims undoubtedly suffered emotional trauma from his “treatments.”

But that emotional trauma undeniably resulted from Nassar’s physical violation of the young women. Treasury Regulation Section 1.104-1(c)(1) provides that “damages emotional distress attributable to a physical injury . . . are excluded from income under section 104(a)(2).”

Therefore, the settlements which MSU is paying the gymnasts, an average of $1.28 million per victim (before fees and costs), are free of federal income tax to the victims.

As most state income tax schemes rely upon federal taxable income, most of the settlements should escape state income tax as well.

Stephen J. Dunn is a tax attorney in Troy, Michigan. He is the author of the treatise Foreign Accounts Compliance (Thomson Reuters 2017) and Foreign Accounts Compliance Blog. He is also an adjunct professor at Michigan State University College of Law.