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of emotional distress, and from all known claims,
whether based in tort, statute or contract, which are
based in whole or in part, or arise out of, or in any
way relate to: (1) the Lawsuit; and (2) anything done
or allegedly done by PayLess arising out of, or in
conjunction with or relating to, the employment of any
and/or all Plaintiffs prior to November 1, 1992 by
PayLess.
The settlement agreement further provides that “All Settlement
Proceeds are paid to Plaintiffs on account of personal injuries.”
On March 15, 1995, pursuant to the settlement agreement,
petitioner received a payment of $24,076 ($7,935 in back wages
and $16,141 in liquidated damages), from which attorney’s fees of
$8,314 were deducted leaving petitioner with a net payment of
$15,762.
Petitioners did not report any amount from the settlement on
their 1995 Federal income tax return. As reflected in the notice
of deficiency, respondent determined that petitioners must
include the full $24,076 in settlement proceeds in their 1995
gross income and allowed petitioners an $8,314 miscellaneous
itemized deduction for attorney’s fees to collect back wages.
Petitioners argue that all the settlement proceeds are excludable
because they were paid “to Plaintiffs on account of personal
injuries”.
Discussion
Section 61 provides for the inclusion in gross income of all
income from whatever source derived, except as otherwise
provided. This definition of gross income is broadly construed,
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