T.C. Memo. 1997-301
UNITED STATES TAX COURT
FRED AND MARY GILLETTE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1423-96. Filed June 30, 1997.
Fred Gillette and Mary Gillette, pro sese.
Mark A. Weiner, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: By notice dated December 6, 1995, respondent
determined a deficiency in petitioners' 1992 Federal income tax
of $40,513 and an accuracy-related penalty of $8,103. After
concessions, the issue we must decide is whether petitioners,
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pursuant to section 104(a)(2), are entitled to exclude amounts
received in settlement of a class action suit. We hold they are
not.
Unless otherwise indicated, all section references are to
the Internal Revenue Code as in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Background
The facts have been fully stipulated under Rule 122 and are
so found. At the time the petition was filed, petitioners
resided in Bakersfield, California.
On June 1, 1979, a class action suit against State Farm
General Insurance Co., State Farm Mutual Automobile Insurance
Co., State Farm Life Insurance Co., and State Farm Fire and
Casualty Co. (State Farm) was filed in the U.S. District Court
for the Northern District of California, Kraszewski v. State Farm
Gen. Ins. Co. The plaintiffs alleged that State Farm, in
violation of title VII of the Civil Rights Act of 1964 (Title
VII), had discriminated against women in the hiring of its
insurance agents. On November 6, 1981, the District Court
bifurcated the litigation into a liability and a remedy phase.
On April 29, 1985, the District Court ruled in the liability
phase that State Farm was liable under Title VII for classwide
discrimination on the basis of sex. Specifically, it ruled that
women who attempted to become trainee agents were "lied to,
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misinformed, and discouraged in their efforts to obtain the entry
level sales position." The court found State Farm liable with
respect to "all female applicants and deterred applicants who, at
any time since July 5, 1974, have been, are, or will be denied
recruitment, selection and/or hire as trainee agents by defendant
companies within the State of California."
Mary Gillette was a member of the class action suit and
prevailed in her claim. As a result, in 1992 State Farm issued
petitioner and her attorney a $155,888 check. Petitioner's
attorney retained legal fees of $31,226, and the balance was paid
to petitioner. None of the $155,888 amount was reported or
disclosed on petitioners' return. Respondent determined that the
entire $155,888 should have been included in petitioners' gross
income.
Discussion
This 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 taxpayer's gross income. See Hayes v.
Commissioner, T.C. Memo. 1997-213; 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. Petitioner has
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presented no new facts or contentions. Accordingly, we sustain
respondent's determination that the $155,888 is not excludable
under section 104(a)(2).
We have considered all other arguments made by the parties
and found them to be either irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.