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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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