T.C. Memo. 1997-213
UNITED STATES TAX COURT
TOMMY JEAN HAYES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4534-96. Filed May 7, 1997.
Tommy Jean Hayes, pro se.
Eric D. Stenson, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: Tommy Jean Hayes petitioned the Court to
redetermine respondent's determination of a $50,200 deficiency in
her 1992 Federal income tax and a $2,448 addition thereto under
section 6651(a)(1). Following concessions, the only remaining
issue is whether section 104(a)(2) allows petitioner to exclude
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from her gross income $220,723 of settlement proceeds received
from State Farm Insurance Co. (State Farm). We hold it does not.
Section references are to the Internal Revenue Code in effect for
the year in issue. Rule references are to the Tax Court Rules of
Practice and Procedure. Dollar amounts are rounded to the
nearest dollar.
FINDINGS OF FACT
Most of the facts have been stipulated and are so found.
The stipulated facts and the exhibits submitted therewith are
incorporated herein by this reference. Petitioner resided in
San Diego, California, when she petitioned the Court.
Petitioner was a claimant in the class action lawsuit (the
Lawsuit) entitled Kraszewski v. State Farm Gen. Ins. Co. The
Lawsuit was filed against State Farm in the U.S. District Court
for the Northern District of California on June 1, 1979, on
behalf of a class of women who alleged that State Farm had
engaged in sex discrimination during the recruitment, hiring, and
training of women for insurance sales agent positions within
California, in violation of title VII of the Civil Rights Act of
1964, Pub. L. 88-352, 78 Stat. 241, 253.
On April 29, 1985, the District Court ruled that State Farm
was liable for gender discrimination. See Kraszewski v. State
Farm Gen. Ins. Co., 38 Fair Emp. Prac. (BNA) Cas. 197 (N.D. Cal.
1985). The District Court found that women who attempted to
become State Farm trainee agents were "lied to, misinformed, and
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discouraged in their efforts to obtain the entry level sales
position." One year later, the District Court ordered hearings
to determine individual liability and damages.
The District Court referred the Lawsuit to Judge Eugene
Lynch as mediator. After September 24, 1991, under Judge Lynch,
State Farm and class action counsel started negotiations to
attempt to settle the claims of individual litigants. As a
result of the negotiations, a Master Settlement Agreement was
reached on January 17, 1992. The agreement provided a formula
for the computation of damages that State Farm would offer to
each claimant, who was free to accept or reject the offer.
On or around January 17, 1992, the District Court provided
petitioner with a document entitled "Communication of State
Farm's Settlement Offer", accompanied by a "Summary of Terms of
State Farm's Settlement Offer", which had been reviewed and
approved by Judge Lynch. State Farm offered petitioner $204,523
to release her claims against State Farm. The offer was
conditioned upon acceptance of State Farm's offers by at least
87.5 percent of the 821 final claimants represented by class
action counsel to whom offers of that type had been extended.
The $204,523 represented 37 percent of the full Consent Decree
value of petitioner's claim.
The offer also provided that petitioner would share in any
"incentive cash" payable. This was an additional amount computed
under a formula based upon the number of percentage points by
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which the acceptance of State Farm's offers exceeded 90 percent.
The maximum incentive payment was $18,000.
Petitioner accepted State Farm's offer, and State Farm
issued a $220,723 check during 1992, payable to petitioner and
class action counsel. The check represented the $204,523
settlement of her claim and a $16,200 incentive payment. Of the
total payment of $220,723, $44,133 was retained by class action
counsel as legal fees, $59 was applied to costs relating to the
settlement distribution, and $5,000 was withheld as a
contribution by petitioner to an appreciation fund. Petitioner
received the balance.
Petitioner did not report any of the $204,523 settlement
amount or any of the $16,200 incentive payment on her 1992
Federal income tax return. On January 2, 1996, respondent issued
petitioner a notice of deficiency for 1992. The notice stated
that the settlement amount and incentive payment aggregating
$220,723 were includable in petitioner's gross income for 1992,
and that petitioner was allowed to deduct 20 percent of this
amount ($44,145) for related legal fees.
OPINION
The instant case requires the Court to revisit the
taxability of the proceeds received by a claimant who was a
member of the class of plaintiffs in Kraszewski v. State Farm
Gen. Ins. Co. In each of our prior cases, we held that none of
the proceeds were excludable from the petitioning taxpayer's
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gross income. See Hardin v. Commissioner, T.C. Memo. 1997-202;
Raney v. Commissioner, T.C. Memo. 1997-200; Clark v.
Commissioner, T.C. Memo. 1997-156; Berst v. Commissioner, T.C.
Memo. 1997-137; Martinez v. Commissioner, T.C. Memo. 1997-126;
Fredrickson v. Commissioner, T.C. Memo. 1997-125. We hold
similarly today. Petitioner has presented no new arguments which
would change our view on the instant issue, and we continue to
adhere to our view as espoused in those Memorandum Opinions for
the reasons stated therein.
Petitioner's primary argument is that she received her
proceeds under a cause of action arising from the Civil Rights
Act of 1991 (the CRA of 1991), Pub. L. 102-166, sec. 102, 105
Stat. 1071, 1072-1073, and that the CRA of 1991 provides tort
type damages that compensate for personal injury. Petitioner
argues that the CRA of 1991 governs her case because Judge Lynch
signed State Farm's offer to the class after the CRA of 1991 was
signed into law. We considered petitioner's primary argument in
Clark v. Commissioner, supra, and we rejected it there. We do
likewise today.
We hold for respondent. In so doing, we have considered all
arguments made by petitioner for a contrary holding, and, to the
extent not discussed above, find them to be irrelevant or without
merit. To reflect concessions by respondent,
Decision will be entered
under Rule 155.