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8. Liability Denied and Basis for Settlement
PayLess denies any liability on its part and enters
into this agreement solely to avoid litigation and to
buy its peace. All Settlement Proceeds are paid to
Plaintiffs on account of personal injuries. * * * None
of the provisions of this Settlement Agreement and
nothing contained in this Settlement Agreement shall be
construed as an admission of any liability whatsoever
by any party hereto to any other party hereto.
[Emphasis added.]
A total of $5 million was paid by PayLess to the class in
consideration of the Settlement Agreement. Specifically,
petitioner received $20,033.58 from Holland & Hart as her “Net
Cash Recovery” from the settlement. Petitioner’s portion of
attorney’s fees and costs, approximately $10,565, was retained by
Holland & Hart.
Petitioners timely filed their joint Federal income tax
return for the taxable year 1995. They did not report any
portion of the settlement proceeds on their return, nor did they
claim a corresponding deduction for attorney’s fees or costs.
In the notice of deficiency, respondent determined that
petitioners failed to include in gross income the settlement
proceeds of $30,599, of which $9,895 is wages subject to
employment tax, and that petitioner is allowed a Schedule A
deduction for attorney’s fees, which was not claimed on the
original return.
Petitioners contend that the settlement proceeds were paid
to petitioner to settle claims for personal injury and
intentional infliction of emotional distress; therefore, the
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Last modified: May 25, 2011