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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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