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1. Whether petitioners, pursuant to section 104(a)(2), are
entitled to exclude amounts received in settlement of a class
action suit. We hold they are not.
2. Whether petitioners, pursuant to section 162, are
entitled to an above-the-line deduction for legal fees. 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 Eureka, 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, et al. 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.
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