In the case of Commissioner of Internal Revenue v. Erich E. Schleier and Helen B. Schleier, 1994, the U.S Supreme Court ruled that a settlement received by Mr. Schleier from his former employer under Age Discrimination in Employment Act (ADEA) was not exempt from taxation under section 104(a)(2) of the Internal Revenue Code which excludes damages for personal injuries or sickness from gross income. The court held that to qualify for this exclusion, it must be demonstrated that the damages were received "on account of" personal injury or sickness and also meet a requirement known as "tort-type". In this case, neither requirements were met because ADEA does not require proof of any physical injury or illness nor is it considered tortious conduct but rather an economic loss due to discriminatory employment termination.

In the dissenting opinion for Commissioner of Internal Revenue v. Schleier, Justice Scalia argued that the majority's interpretation of Section 104(a)(2) was incorrect and inconsistent with its historical understanding. He contended that this section traditionally exempted all personal injury damages from taxation, not just those compensating for "observable bodily harm." The majority's decision to exclude age discrimination awards from tax exemption represented a significant departure from this tradition. Furthermore, he criticized their reliance on legislative history rather than clear statutory text in reaching their conclusion. In his view, if Congress intended to limit tax exemptions only to physical injuries or sicknesses, it would have explicitly stated so in the law itself.