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The issue for decision is whether petitioners are entitled,
pursuant to section 104(a)(2), to exclude from income proceeds
received in settlement of an age discrimination lawsuit.
FINDINGS OF FACT
Petitioners resided in Coatesville, Pennsylvania, at the
time the petition was filed. In October 1994, Mrs. Peaco filed a
lawsuit against her former employer, Chester County Intermediate
Unit 24 (CCIU), alleging violations of the Age Discrimination in
Employment Act (ADEA) and the Pennsylvania Human Relations Act
(PHRA). She claimed damages which included fringe benefits,
pension benefits, front pay, back pay, and pain and suffering.
In her complaint, she did not allege facts relating to any
personal injury.
In a letter to CCIU’s executive director dated March 27,
1995, CCIU’s attorney estimated that CCIU’s liability to Mrs.
Peaco could exceed $100,000 of back pay, and could be nearly
$400,000 of front pay. The attorney suggested that the back pay
amount would be doubled, in accord with the ADEA, if a jury found
“willful” discrimination. He noted that the pain and suffering,
and punitive, damages were “a wildcard”.
On May 17, 1995, CCIU entered into an agreement with its
insurer, Utica Mutual Insurance Company (Utica), allocating
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