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that the damages awarded were actually based on length of
employment and number of hours worked by petitioner.
Damages for petitioner’s personal injuries, however real and
distressful for petitioners, were not claimed in the class action
lawsuit against PayLess, nor was the Settlement Agreement
intended to provide relief for such injuries. The class action
notice informed petitioners that they were not required to join
the class action. The notice clearly stated that “if you choose
not to join this suit, you are free to file your own lawsuit with
an attorney of your choosing.”
In order for petitioners to prevail under section 104(a)(2),
both components of the test, as stated above, must be satisfied.
Petitioners failed to show that the settlement award was paid as
compensation for personal injury or sickness. Therefore, the
entire settlement award is includable in gross income, and
petitioners are entitled to a corresponding deduction for
attorney’s fees and costs under section 67(a), subject to
limitations.
We have considered all arguments by the parties, and, to the
extent not discussed above, conclude that they are irrelevant or
without merit.
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