Lars E. Fredrickson, Jr., and Donna J. Fredrickson - Page 6

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          The critical question is "in lieu of what was the settlement                
          amount paid?"  Bagley v. Commissioner, 105 T.C. 396, 406 (1995).            
          Determination of the nature of the claim is a factual inquiry.              
          Robinson v. Commissioner, supra at 127.                                     
               The amounts petitioner received under the settlement                   
          agreement were intended to settle petitioner's claim under Title            
          VII.  Although the settlement agreement does not contain a                  
          specific statement to that effect, the surrounding circumstances            
          establish that Title VII is the underlying claim.  Petitioner was           
          a member of a class action suit asserting a claim of                        
          discrimination under Title VII.  The District Court ruled that              
          State Farm was liable under Title VII to all members of the class           
          who had been discriminated against and ordered individual                   
          hearings.  State Farm and the plaintiffs to the class action suit           
          agreed on a procedure and a formula to ascertain the amount owed,           
          if any, to each individual claimant.  Petitioner's damages under            
          the consent decree were ascertained, and petitioner was paid an             
          amount equal to 78 percent of her full claim under the consent              
          decree, plus a bonus amount.  Thus, the consent decree                      
          implemented the District Court's ruling that State Farm was                 
          liable under Title VII, and the settlement agreement represented            
          a compromise and settlement of petitioner's rights under the                
          consent decree.  As a result, we conclude that petitioner's                 
          settlement proceeds were intended to settle her Title VII claim             

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