William L. and Marsha G. Kidd - Page 2

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          petitioners’ concession, we decide whether section 104(a)(2)                
          excludes from their 2000 gross income $132,000 that petitioner              
          William L. Kidd (Kidd) received in settlement of the unspecified            
          “equitable remedy” awarded to him in his reverse discrimination             
          lawsuit (lawsuit) against the State of California and two of its            
          agencies (collectively, defendants).  We hold it does not.                  
          We also decide whether petitioners are liable for an                        
          accuracy-related penalty under section 6662(a) and (d).  We hold            
          they are not.                                                               
                                  FINDINGS OF FACT                                    
               Some facts were stipulated.  The stipulated facts and the              
          exhibits submitted therewith are incorporated herein by this                
          reference.  We find the stipulated facts accordingly.                       
          Petitioners, husband and wife, resided in California when their             
          petition was filed.  They filed a joint 2000 Federal income tax             
          return (2000 return) on August 19, 2001.                                    
               In 1985, Kidd and Edward Swiden (Swiden) commenced the                 
          lawsuit in the California Superior Court for Sacramento County              
          (superior court) by filing a petition for writ of mandamus and              
          complaint for declaratory and injunctive relief.  The defendants            
          were the State of California (California), the California                   
          Personnel Board (board), and the California Department of Fish              


               1(...continued)                                                        
          applicable versions of the Internal Revenue Code.                           





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