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crimination or other charges, personal injuries, de-
mands, debts, liens, damages, costs, grievances, inju-
ries, actions or rights of action of any nature whatso-
ever, known or unknown, liquidated or unliquidated,
absolute or contingent, in law or in equity, which
could have been filed with any federal, state, local or
private court, agency, arbitrator or any other entity,
based directly or indirectly upon Nield’s employment
with Goer * * *.
On March 26, 1998, Goer issued to Ms. Nield a check in the
amount of $2,644.50, which represented the $3,000 in wages, less
required payroll deductions, to which Ms. Nield was entitled
under paragraph 1.a. of the settlement agreement. Pursuant to
the settlement agreement, Goer issued to Ms. Nield Form W-2, Wage
and Tax Statement, for 1998 showing the $3,000 in wages and the
payroll deductions.
On March 27, 1998, Goer issued to Ms. Nield a check in the
amount of $29,000, which represented the $29,000 in “non-wage
consideration for general compensatory damages for pain and
suffering” to which Ms. Nield was entitled under paragraph 1.b.
of the settlement agreement. Pursuant to the settlement agree-
ment, Goer issued to Ms. Nield Form 1099-MISC, Miscellaneous
Income (Form 1099), for 1998 showing “Other income” of $29,000.
Petitioners filed a tax return (return) for their taxable
year 1998. In that return, petitioners included in gross income
the $3,000 in wages, and excluded from gross income the $29,000
settlement amount at issue, that Ms. Nield received from Goer.
On June 26, 2001, respondent issued to petitioners a notice
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