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On April 29, 1985, the District Court ruled that State Farm
was liable for gender discrimination. See Kraszewski v. State
Farm Gen. Ins. Co., 38 Fair Empl. Prac. Cas. (BNA) 197 (N.D. Cal.
1985), affd. in part, revd. in part and remanded 912 F.2d 1182
(9th Cir. 1990). The District Court found that women who
attempted to become State Farm trainee agents were "lied to,
misinformed, and discouraged in their efforts to obtain the entry
level sales position."
On April 17, 1992, State Farm issued a check payable to
Ms. Westmiller and her attorneys in the amount of $283,395, and
State Farm withheld another $148 for State and Federal income
taxes, in settlement of Ms. Westmiller's claims in the Lawsuit.
Ms. Westmiller's attorneys kept $57,702 of the amount stated in
the check, and Ms. Westmiller received the rest. Petitioners did
not include any of the $283,395 amount in their 1992 gross
income, stating on their 1992 tax return that section 104(a)(2)
allows them to exclude from gross income any amount received from
State Farm in connection with the Lawsuit.
On June 3, 1996, respondent issued petitioners a notice of
deficiency for 1992. The notice states that petitioners received
$283,1171 in settlement of the Lawsuit, and that this amount is
taxable to them. The notice also states that petitioners may
1 The record does not disclose why respondent attempts to
tax only $283,117 of the amount that Ms. Westmiller received in
settlement of the Lawsuit.
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