Richard D. Waters - Page 3




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          petitioner's Federal income tax for 1995.                                   
               The sole issue for decision is whether certain amounts                 
          received by petitioner from his former employer during 1995 in              
          connection with the settlement of a class action against his                
          former employer are excludable from gross income under section              
          104(a)(2).  At trial, the parties conceded certain amounts, and             
          those concessions are noted hereafter.                                      
               Some of the facts were stipulated.  Those facts, with the              
          annexed exhibits, are so found and are incorporated herein by               
          reference.  At the time the petition was filed, petitioner was a            
          legal resident of Las Vegas, Nevada.                                        
               Petitioner was an employee of PayLess Drug Stores Northwest,           
          Inc. (PayLess), from approximately 1986 to 1993.  He started his            
          employment with PayLess as a temporary employee at Big Spring,              
          Texas, doing building maintenance.  He later was employed by                
          PayLess on a permanent basis as a shipping and receiving clerk.             
          After approximately 1 year, he was promoted to supervisor for               
          approximately 2-3 years, then as a floor manager for 3 years.               
          After that, petitioner worked approximately 9 months opening new            
          stores and closing old stores.  Following that, PayLess sold its            
          remaining stores in Texas and Oklahoma, and petitioner was                  
          offered a position with PayLess as a supervisor at Las Vegas,               
          Nevada, which he accepted.  Petitioner's employment with PayLess            
          terminated in 1993.  The record does not reflect the reasons for            





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