- 4 - against the Lynwood School District. The cause of action was based solely on the Civil Rights Act of 1964, 42 U.S.C. secs. 2000a to 2000b-2. Petitioner alleged discrimination in placing him on administrative leave and not reviewing his employment agreement, and he sought damages for emotional distress, backpay, punitive damages, attorney’s fees, and the cost of his suit. During 1996, the parties to the above-referenced litigation entered into a settlement agreement under which petitioner received damages of $140,000 solely for emotional distress. Also during 1996, petitioner paid legal fees and costs, in the total amount of $55,127.03, for the legal representation concerning the termination of his employment with the Lynwood District and the Civil Rights Act litigation and its settlement. On their U.S. Individual Income Tax Return (Form 1040) for 1996, petitioners claimed, on Schedule A, Itemized Deductions, the $55,127.03 for legal fees and costs, and respondent disallowed the claim. Of the $55,127.03 in legal fees, $10,000 is attributable to the attorney’s efforts before the school board and to protect petitioner’s potential for future compensation as an employee. OPINION Respondent agrees that petitioner’s $140,000 settlement recovery is exempt from tax under section 104(a)(2).2 The 2 All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the (continued...)Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011