-2-
Respondent determined a $5,164 deficiency in income tax for
petitioners’ 1995 taxable year. The sole issue for our
consideration is whether proceeds received by Joni J. Ramey
(petitioner) in settlement of an action under the Fair Labor
Standards Act of 1938 (FLSA), ch. 676, secs. 1, 16(b), 52 Stat.
1060, current version at 29 U.S.C. secs. 201, 216(b) (1994), are
for personal injury or sickness and excludable from her gross
income under section 104(a)(2).
Background2
In 1993, 267 employees (the class) of PayLess Drugstores,
Inc. (PayLess), filed a class action lawsuit under the FLSA in
the U.S. District Court for the District of Idaho (the lawsuit).
One of these employees was petitioner.
The class alleged that, despite managerial-sounding titles
and job descriptions, they were, in fact, hourly employees who
were required to work overtime without compensation. As relief,
the class sought to be paid time-and-a-half for all the hours
worked in excess of the statutory limit of 40 hours, liquidated
damages in an amount equal to the unpaid overtime compensation,
and attorneys’ fees and costs.
In January 1995, the class action was settled for $5
million, and the plaintiffs sought judicial approval of the
settlement. In a memorandum in support of their motion,
2 The facts were fully stipulated.
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