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OPINION
Respondent argues that petitioners’ gross income for 1994
must be increased by: (1) $58,372.50 to reflect the amount
received under paragraph 2 of the settlement agreement, and (2)
$13,393.54 to reflect income from the satisfaction of Mr.
Broedel’s loan from the NYRS. Petitioners claim that the amount
received under the settlement agreement is excludable from gross
income under section 104(a)(2) and was intended by the parties to
the settlement agreement to be “tax free” and that petitioners
did not realize income in 1994 when Mr. Broedel’s loan from the
NYRS was satisfied.
Taxability of Settlement Proceeds
Respondent determined that petitioners’ gross income should
be increased by $58,372.50 to account for the amount received
under paragraph 2 of the settlement agreement with SUNY.
Petitioners argue this amount is excludable from income under
section 104(a)(2) because it was paid to settle Mr. Broedel’s
claim against SUNY pursuant to the Americans with Disabilities
Act of 1990 (ADA), Pub. L. 101-336, sec. 2, 104 Stat. 328, for
infliction of emotional distress and to avoid litigation of the
complaint. Petitioners claim that SUNY had repeatedly harassed
Mr. Broedel and damaged his reputation. Petitioners also contend
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